Macroeconomic Forecast for 2023: Exchange Rate Volatility Remains Elevated, Global Economy on the Verge of Recession

In the study assessing the foreign exchange market for 2023, iBanFirst provides a macroeconomic overview for the coming year and the potential impact that the evolution of the main currencies could have on Romanian companies that process international payments and should adopt a exchange risk hedging policy .

iBanFirst experts say that we are in an unprecedented situation, rarely has a recession been predicted so far in advance. Several economies are on the verge of collapse: the euro zone, the United Kingdom and countries where the housing bubble has inflated considerably in recent years, such as Canada and Australia. On the other hand, the United States could avoid a recession if the real estate sector, which represents 5% of American economic growth, does not weaken in the period to come. The momentary drop in prices reflects a market adjustment, but not a market collapse.

China will not be a growth engine next year. According to iBanFirst’s forecast, China’s growth rate is expected to slow significantly in 2023 to around 3%. The Chinese government’s objective is to adjust the economy, currently penalized by the zero-Covid strategy and the heaviness of the restructuring of the real estate market which began in September 2021. Investors anticipate a total loss of 130 billion dollars generated by the Chinese promoters. ‘ default.

A strong dollar in a volatile currency market

For the currency market, the prospect of a recession means a return to volatile conditions as well as a depreciation of the US dollar. According to iBanFirst experts, the US dollar is overvalued against most currencies. For example, it is about 28% overvalued against the euro when measured at the real exchange rate.

Although some analysts raise the possibility of a new coordinated intervention on the foreign exchange market by the major developed countries, as was the case with the Plaza Accord in 1985, this remains hypothetical in the short term. We are still far from the overvalued levels of that time, so we are more likely to see individual central bank interventions to limit the depreciation of their national currencies.

According to iBanFirst forecasts, the euro dollar the exchange rate will tend to rise in 2023, rising from a low of $0.90/euro in the first quarter to $1.05/euro in 6 months and reaching a peak of $1.08/euro from here the end of the year.

“Over the coming year, international businesses will continue to operate in a highly volatile business environment and are exposed to currency risks. In order to maintain their competitiveness on foreign markets, they must anticipate market fluctuations, develop medium and long-term forecast scenarios and consider implementing a hedging strategy. Our team of forex specialists come to import-export businesses with the necessary know-how and customized hedging tools to help them overcome the challenges they may face in executing cross-border transactions,” says Alin Latu, Country Manager iBanFirst Romania.

Evolution of the leu against the euro

Forecasts for the coming year regarding the development of the leu are slightly pessimistic. The exchange rate for 2023 will be influenced by several major factors, the main factor being the level of inflation. As we see a reduction in inflation, the leu will weaken against the European currency. We consider the recent appreciation of the leu as transitory, directly influenced by the inflows of foreign investors in government securities denominated in lei, but also by the strict liquidity management practiced by the National Bank of Romaniaadded Alin Latu.

iBanFirst expects the national currency to depreciate against the euro over the next year. Thus, the expected average exchange rate for the 6-month horizon is 4.95 – 4.98 lei for one euro, while for the 12-month horizon it is 5.03 – 5.05 lei for one euro.

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