Markets
Mapped: 2023 Inflation Forecasts by Country
Mapped: 2023 Inflation Forecasts by Country
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Inflation surged on a global scale in 2022, hitting record-level highs in many countries. Could it finally subside in 2023?
In the above infographic, we look to answer that question using the World Economic Outlook report by the International Monetary Fund (IMF).
Not Yet Out of the Woods
While the IMF predicts that global inflation peaked in late 2022, rates in 2023 are expected to remain higher than usual in many parts of the world. Following the 8.8% global inflation rate in 2022, the IMF forecasts a 6.6% rate for 2023 and 4.3% rate for 2024 based on their most recent January 2023 update.
For the optimists, the good news is that the double-digit inflation that characterized nearly half the world in 2022 is expected to be less prevalent this year. For the pessimists, on the other hand, looking at countries like Zimbabwe, Venezuela, Turkey, and Poland may suggest that we are far from out of the woods on a global scale.
Here are the countries with the highest forecasted inflation rates in 2023.
Country / Region | Projected Annual Inflation % Change 2023 |
---|---|
🇿🇼 Zimbabwe | 204.6% |
🇻🇪 Venezuela | 195.0% |
🇸🇩 Sudan | 76.9% |
🇦🇷 Argentina | 76.1% |
🇹🇷 Turkiye | 51.2% |
🇮🇷 Islamic Republic of Iran | 40.0% |
🇱🇰 Sri Lanka | 29.5% |
🇪🇹 Ethiopia | 28.6% |
🇸🇷 Suriname | 27.2% |
🇸🇱 Sierra Leone | 26.8% |
🇸🇸 South Sudan | 21.7% |
🇭🇹 Haiti | 21.2% |
🇬🇭 Ghana | 20.9% |
🇵🇰 Pakistan | 19.9% |
🇳🇬 Nigeria | 17.3% |
🇾🇪 Yemen | 17.1% |
🇲🇼 Malawi | 16.5% |
🇵🇱 Poland | 14.3% |
🇲🇩 Moldova | 13.8% |
🇲🇲 Myanmar | 13.3% |
🇭🇺 Hungary | 13.3% |
🇧🇾 Belarus | 13.1% |
🇰🇬 Kyrgyz Republic | 12.4% |
🇬🇳 Guinea | 12.2% |
🇲🇳 Mongolia | 12.2% |
🇪🇬 Egypt | 12.0% |
🇦🇴 Angola | 11.8% |
🇰🇿 Kazakhstan | 11.3% |
🇸🇹 São Tomé and Príncipe | 11.2% |
🇷🇴 Romania | 11.0% |
🇺🇿 Uzbekistan | 10.8% |
🇦🇿 Azerbaijan | 10.8% |
🇹🇲 Turkmenistan | 10.5% |
🇸🇰 Slovak Republic | 10.1% |
🇨🇩 Democratic Republic of the Congo | 9.8% |
🇿🇲 Zambia | 9.6% |
🇪🇪 Estonia | 9.5% |
🇲🇪 Montenegro | 9.2% |
🇧🇩 Bangladesh | 9.1% |
🇬🇧 United Kingdom | 9.0% |
While the above countries fight to sustain their purchasing power, some parts of the world are expected to continue faring exceptionally well against the backdrop of a widespread cost-of-living crisis. Many Asian countries, notably Japan, Taiwan, and China, are all predicted to see inflation lower than 3% in the upcoming year.
When it comes to low inflation, Japan in particular stands out. With strict price controls, negative interest rates, and an aging population, the country is expected to see an inflation rate of just 1.4% in 2023.
Inflation Drivers
While rising food and energy prices accounted for much of the inflation we saw in 2022, the IMF’s World Economic Outlook highlights that core inflation, which excludes food, energy, transport and housing prices, is now also a major driving factor in high inflation rates around the world.
What makes up core inflation exactly? In this case, it would include things like supply chain cost pressures and the effects of high energy prices slowly trickling down into numerous industries and trends in the labor market, such as the availability of jobs and rising wages. As these macroeconomic factors play out throughout 2023, each can have an effect on inflation.
The Russia-Ukraine conflict and the lingering effects of the COVID-19 pandemic are also still at play in this year’s inflation forecasts. While the latter mainly played out in China in 2022, the possible resurgence of new variants continues to threaten economic recovery worldwide, and the war persists in leaving a mark internationally.
The confluence of macroeconomic factors currently at play is unlike what we’ve seen in a long time. Though the expertise of forecasters can give us a general understanding, how they will actually play out is for us to wait and see.
Markets
Beyond Big Names: The Case for Small- and Mid-Cap Stocks
Small- and mid-cap stocks have historically outperformed large caps. What are the opportunities and risks to consider?
Beyond Big Names: The Case for Small- and Mid-Cap Stocks
Over the last 35 years, small- and mid-cap stocks have outperformed large caps, making them an attractive choice for investors.
According to data from Yahoo Finance, from February 1989 to February 2024, large-cap stocks returned +1,664% versus +2,062% for small caps and +3,176% for mid caps.
This graphic, sponsored by New York Life Investments, explores their return potential along with the risks to consider.
Higher Historical Returns
If you made a $100 investment in baskets of small-, mid-, and large-cap stocks in February 1989, what would each grouping be worth today?
Small Caps | Mid Caps | Large Caps | |
---|---|---|---|
Starting value (February 1989) | $100 | $100 | $100 |
Ending value (February 2024) | $2,162 | $3,276 | $1,764 |
Source: Yahoo Finance (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.
Mid caps delivered the strongest performance since 1989, generating 86% more than large caps.
This superior historical track record is likely the result of the unique position mid-cap companies find themselves in. Mid-cap firms have generally successfully navigated early stage growth and are typically well-funded relative to small caps. And yet they are more dynamic and nimble than large-cap companies, allowing them to respond quicker to the market cycle.
Small caps also outperformed over this timeframe. They earned 23% more than large caps.
Higher Volatility
However, higher historical returns of small- and mid-cap stocks came with increased risk. They both endured greater volatility than large caps.
Small Caps | Mid Caps | Large Caps | |
---|---|---|---|
Total Volatility | 18.9% | 17.4% | 14.8% |
Source: Yahoo Finance (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.
Small-cap companies are typically earlier in their life cycle and tend to have thinner financial cushions to withstand periods of loss relative to large caps. As a result, they are usually the most volatile group followed by mid caps. Large-cap companies, as more mature and established players, exhibit the most stability in their stock prices.
Investing in small caps and mid caps requires a higher risk tolerance to withstand their price swings. For investors with longer time horizons who are capable of enduring higher risk, current market pricing strengthens the case for stocks of smaller companies.
Attractive Valuations
Large-cap stocks have historically high valuations, with their forward price-to-earnings ratio (P/E ratio) trading above their 10-year average, according to analysis conducted by FactSet.
Conversely, the forward P/E ratios of small- and mid-cap stocks seem to be presenting a compelling entry point.
Small Caps/Large Caps | Mid Caps/Large Caps | |
---|---|---|
Relative Forward P/E Ratios | 0.71 | 0.75 |
Discount | 29% | 25% |
Source: Yardeni Research (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.
Looking at both groups’ relative forward P/E ratios (small-cap P/E ratio divided by large-cap P/E ratio, and mid-cap P/E ratio divided by large-cap P/E ratio), small and mid caps are trading at their steepest discounts versus large caps since the early 2000s.
Discovering Small- and Mid-Cap Stocks
Growth-oriented investors looking to add equity exposure could consider incorporating small and mid caps into their portfolios.
With superior historical returns and relatively attractive valuations, small- and mid-cap stocks present a compelling opportunity for investors capable of tolerating greater volatility.
Explore more insights from New York Life Investments
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