Review & Outlook

January 2023

An extremely eventful year is now at an end and will go down in the history books. At the beginning of the year, sentiment across the economy was still optimistic due to the waning pandemic, but the optimistic mood was then abruptly shattered by the outbreak of the war in Ukraine. This propelled inflation rates yet further from the already-high levels reached the year before. The sanctions imposed on Russia caused energy prices to well and truly explode, especially in Europe. Unfortunately, there is hardly any hope of the conflict being resolved any time soon, as neither side is so far willing to make concessions.

On the other side of the world, China is still battling with rising Covid infections. But a conflict with the US over high-end technology products and rising tensions in the dispute over Taiwan’s independence are also dampening sentiment. And the now-steady slowdown in China’s economic growth is likewise impacting negatively on the rest of the world.

Worldwide, the focus of central bank policy has shifted to maintaining purchasing power. In an unprecedented series of moves, the US Federal Reserve raised interest rates by 4.25% over the course of this year in an attempt to choke consumer demand and thus counter inflation. Inflation rates have now lessened slightly in recent months. But let’s not deceive ourselves; energy prices and food costs n particular will keep inflation high for a long time to come.

In Europe too, interest rates have been raised in recent months despite Russia’s conflict. The greater strain on households from energy costs in particular is therefore likely to tip the economy into recession next year.

In recent years, we have constantly warned on the massive increase in the US debt pile. However, we now have to admit that the debt situation in Europe has also deteriorated enormously, especially as a result of the conflict in Ukraine. Worldwide, the current rises in interest rates, combined with a slowing economy, are therefore leading to an untenable situation and creating a powder keg for the financial markets. In recent weeks, all central banks have affirmed that interest rates will have to rise further in the coming year so that inflation can be tamed. However, interest costs make up an ever larger portion of government spending, which it is likely will soon appear unaffordable. In view of a further economic slowdown, it is therefore probable that central banks will have to change their interest rate policy and lower rates again earlier than planned.

With the exception of gold, all asset classes suffered severe setbacks over the course of the year. Unfortunately, we do not have a cast-iron investment tip for the coming year either. However, we are convinced of the quality of our broadly diversified investments and so are keeping to our long-term investment policy

It is our pleasure to be able to serve you. We wish you and your family all the best for the new year. Stay safe and well.

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