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13 risks for 2023

  • We list 13 major risks for the global economy in 2023 – 8 are global; 5 are relevant to emerging markets specifically

  • Global risks: High inflation, global recession, escalating war in Ukraine and other geopolitical tensions, and more

  • For EMs, risks include challenges around fiscal consolidation, threats to central bank credibility and elections

13 risks for 2023
Stuart Culverhouse
Stuart Culverhouse

Chief Economist & Head of Fixed Income Research

Tellimer Research
31 December 2022
Published byTellimer Research

Much like we saw in 2022, we think financial markets in 2023 will be dominated by inflation, and expectations over when the global tightening cycle will end, if not reverse. If major central banks – including the Fed – can get it right, with a soft landing for the global economy, lower bond yields and a weaker dollar, then emerging markets could enjoy a virtuous circle.


However, if inflation proves stickier and we see further upside inflation surprises, volatility will continue and EM could be in for yet another challenging year. Geopolitical risks could also weigh on sentiment and the impact will be hard to predict.

In this report, we list 13 of the key global risks to the outlook, eight of which are global, with five specifically related to emerging markets.

  1. High inflation could persist for longer than anticipated, forcing central banks to tighten more aggressively, or lead to over-tightening, which could result in a deeper-than-expected recession.

  2. A global recession or sharper-than-expected slowdown could transpire, weakening fiscal positions, corporate and household balance sheets, and leading to social unrest. 

  3. Russia’s war in Ukraine could escalate, continue for much longer and spill over to other regions (negative) or end in a durable negotiated peace (positive). 

  4. China and Covid. China effectively ended its zero-Covid policy on 7 December, although uncertainty over implementation and possible reversals, amid still high infection rates and public suspicion, and the lingering impact of protests, could weigh on sentiment and China’s GDP growth, and consequently, demand for goods and commodities exports from and investment flows to EM. As most global forecasts already assumed some gradual easing in China’s zero-Covid strategy, there may be more limited upside if restrictions are removed more quickly than expected, while the possibility that this might not happen presents downside risks to global and EM growth prospects.

  5. Uncertainty about the price and availability of oil and other key commodities, especially in Europe as we head into the winter;

  6. Broader geopolitical tensions, especially between the US and China, China-Taiwan, US-DPRK, and the associated potential for further fragmentation and localisation of already-strained global supply chains; and

  7. Strong dollar. Although the consensus is for a weaker dollar, on the back of expected lower US rates, what if the consensus is wrong again (eg on the back of an even more dovish rate outlook in Europe or other non-US G10 currencies and/or flight to safety triggered by geo-political shocks)? And given the extent of the recent rally, is there scope for reversal (see above)?

  8. Threats to international financial stability caused by, for example, i) weakness in NBFIs or fund outflows leading to the collapse of a major asset manager, ii) potential weakness and wobbles in European banks and associated spillovers, which could be aggravated by weaker growth/recession, and/or iii) spillovers and unknowns from the crypto crash (eg FTX).

And, specifically for EM, risks include the following.

  1. Challenges in implementing post-pandemic fiscal consolidation across many EM, particularly smaller EM and frontiers, especially if growth weakens.

  2. Threats to central bank credibility from persistently high global inflation, with inflation expectations more easily de-anchored in EM, threatening to reverse the hard-won credibility gains in recent years for many EM central banks;

  3. Important elections in several key EM that could have implications for policy and/or political stability, including Nigeria, Kazakhstan, Turkey, Pakistan and Argentina, among others;

  4. Lingering default risks for countries with large external financing needs and limited market access; and

  5. Lower- or higher-than-expected oil prices, which will hinge on the global growth outlook and the ability/willingness of OPEC+ to exert control over prices, with attendant risks for oil exporters if prices are lower than anticipated and oil importers if they are higher than expected.

From a longer-term perspective, the narrative of outsized growth in EM and convergence between emerging and advanced per capita incomes over time is still intact, but has undoubtedly been slowed by post-pandemic scarring and the associated rise in economic vulnerabilities in many EM. And with structural reform taking a backseat to macro stabilisation over the past couple of years, it remains to be seen which EM, if any, will be able to take up the mantle of structural reform and move their economies towards a more sustainable and robust growth model in the years ahead.

In the meantime, while brighter horizons are likely in store for EM after two brutal years, 2023 will yet again be fraught with risks and uncertainty, and it is still too early to say whether EM assets are out of the woods.

This report is an updated version of the relevant section from our publication 2023 outlook – virtuous circle, dated 7 December.

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