Economic outlook

Q2 2023 Economic outlook: Tipping point

Economic data remains strong, but consumer and business sentiment look increasingly shaky. Are we at a tipping point?

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April 10, 2023 | 15 minute read

Economic data remains strong, but consumer and business sentiment look increasingly shaky. Now, financial markets are erupting with volatility on the back of added policy uncertainty. Concerns about a recession have been circulating for some time, and Q2 is starting to feel like a tipping point.


Q2 2023 Economic outlook: Tipping point

Key takeaways

  • The economy is the bright spot (for now), with a possible recession on our watchlist.
  • The policy outlook has become severely challenged given recent systemic concerns.
  • Treasury volatility is extreme and is no longer the ballast in portfolios. We look at how investors can navigate rising uncertainty in Q2.

We launch into Q2 with a surprisingly strong economy, which will be needed as headwinds intensify. The tipping point between growth and recession in any business cycle often involves the interplay between policy, the economy and financial markets. Spending and employment data have remained strong, despite higher inflation that has caused the Fed to raise rates aggressively. This is testament to the momentum the economy carried into 2023. Suddenly, a new headwind has arisen as two regional bank failures rocked financial markets with concerns about financial stability. When the Fed raises rates, it slows growth via interest-rate sensitive sectors like construction, housing and business investment. When systemic banking concerns arise, banks tighten lending standards, further constraining GDP growth. How far banks will tip into caution has jumped to the top of our watch list in the coming quarter.

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Andrew Korz, CFA

Executive Director, Investment Research

Lara Rhame

Chief U.S. Economist + Managing Director

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