CEO Ralph Hamers of Swiss bank UBS speaks at the Annual Meeting of the Swiss Financial Institute in Zurich, Switzerland, November 10, 2022.
Arnd Wiegmann | Reuters
2023 will be “the turning point” for the global economy, he said UBS CEO Ralph Hamers on the sidelines of the World Economic Forum in Davos, Switzerland, where inflation, interest rates and economic growth are firmly in focus.
Investors are cautiously bullish on the recent deluge of promising data from major economies, with inflation impressions indicating that consumer price increases may be coming back to earth.
Central banks around the world have been aggressively tightening monetary policy in order to bring inflation back to their respective targets. Hopes that policymakers can end the cycle of raising interest rates, limiting potential damage to the global economy, would offer a boost to equity markets that took a hit in 2022.
Speaking to CNBC on the sidelines of the WEF, Hamers suggested that markets should wait for more rounds of important data before determining that falling inflation has become a trend.
“We know that energy prices and other prices have a massive effect on some of this data, whether it’s in terms of the psychological side of spending or the actual prices as well, so before this becomes a trend I think we have to have watch out,” Hamers said.
“What we believe is that certainly inflation is coming back, both in the United States and in Europe, where we really feel that there will be a drop in the beginning of the year here in Europe than in the United States, we also feel that as the year goes on we will see more points where we think this will be the turning point.”
‘Inflation is not over’
While nominal inflation has eased largely due to falling energy and food prices, central banks have also remained focused on labor markets for signs of entrenchment and upward wage pressure.
US non-farm payrolls increased by 223,000 in December, while the jobless rate fell to 3.5% and average hourly earnings increased by 4.6% from a year earlier.
The UK labor market has also proved resilient, and against a backdrop of double-digit inflation, better-than-expected economic data and strikes across the country, the data suggest that wage pressures could become persistent.
Average total compensation (including bonuses) and average normal compensation (excluding bonuses) increased by 6.4%, from 6.2% and 6.1%, respectively. While well above where the Bank of England would like wage growth to settle, those numbers still resembled a decline when adjusted for inflation. In real terms, total and regular compensation fell by 2.6%.
While these pressures have shown signs of slowing down in the latest figures, continued labor market resilience would increase pressure on the The US Federal Reserve and the Bank of England continue to raise interest rates in order to prevent inflation from becoming structural.
Standard Chartered CEO Bill Winters told CNBC in Davos on Tuesday that he is wary of concluding that inflation is rising, especially when looking at the global picture.
“Inflation is not over. We had the big energy price spike and we’re having the energy price decompression, partially, but underlying, the job market in the US is still quite strong, there are labor shortages all over the world “Winters said.
“Wage inflation, while possibly moderating a little bit, I think it’s kind of structural, so I don’t think the Fed is quite ready. I think they still have some hikes left, but they’re going to keep a close eye on the impact of their actions on the economy. “
Winters noted that US business and consumer balance sheets are still in good shape, meaning the economy can absorb higher rates more readily than in previous bull cycles and suggesting the Fed “has a long way to go.” “.
He also pointed to the recent “substantial growth outperformance in emerging markets”, which could be furthered as China reopens its economy and demand returns.
“This will all be a good recovery for the time when Europe and the US slow down. As we move from the big developed economies to the rest of the world, the pace of growth is pretty good,” Winters said.
“That should be good for economic activity, but I think it will mean that inflationary pressures will last a little longer, so I wouldn’t be too excited about the end of the Fed’s hike cycle.”
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