Looking back on predictions can be a painful exercise – after all, hindsight is 20/20. But it can also be useful to consider why some forecasts were more accurate than others as they may provide a pointer to what might happen over the next 12 months.

Talk of Recession

With that in mind, we start by looking at the global economic forecasts for this year. In mid-December 2022, BofA Global Research economists and strategists suggested that the US, eurozone and UK would all see recessions.

This prediction very nearly came to pass in the UK, where the economy flatlined but stayed just on the right side of downturn thanks to higher business investment in the first half of the year, while the picture was less clear in the eurozone where the economy contracted for two consecutive quarters but the broader measurement (that includes unemployment figures) meant it was only a ‘technical’ recession.

Better than expected employment data also meant the widely predicted US recession did not come to pass, with economic growth defying expectations.

Problems for Banks

Gloomy predictions for the banking sector proved more prescient. The Economist Intelligence Unit warned that rising interest rates and international political tensions would worsen conditions for banks in 2023 and within the first quarter a number of banks had fallen, albeit for a variety of reasons.

The Bank for International Settlement described the banking turmoil that started in March 2023 as the most significant system-wide banking stress since the Great Financial Crisis in terms of scale and scope. Poor bond investment decisions did for Silicon Valley Bank, while Silvergate Bank and Signature Bank were brought down by volatility in the cryptocurrency market.

The biggest casualty was Credit Suisse, which had to be rescued by UBS after years of scandal finally precipitated mass deposit withdrawals. The admission of ‘material weaknesses’ in financial reporting for 2021 and 2022 was pretty much the final straw.

Argentina and Brazil's Muted Currency Union

Speaking of turmoil, Argentina started the year in discussion with Brazil over a currency union – a proposal the Center for Strategic and International Studies suggested could make economic sense if fundamental macroeconomic, legal, and political conditions were met.

Many observers noted that the real objective was to reduce Argentina’s reliance on the US dollar, but subsequent political events have shifted the focus from de-dollarization firmly back towards the greenback.

Having been initially dismissed as a no-hoper, far-right economist Javier Milei won a surprise victory in the October presidential election. There is of course no guarantee that Milei will follow through on his promise to abolish Argentina's central bank and its domestic currency, but many feel it would help to stabilize an economy that has seen massive inflation acceleration and peso depreciation this year.

Bullishness Around ETFs

There was plenty of bullishness around ETFs at the end of 2023. Oliver Wyman suggested the ETF landscape was moving into a new stage of growth fueled by the rise of active ETFs, while State Street referred to continued innovation and growth.

These positive predictions have come to pass, boosted by increased availability of active ETFs and growing appreciation of the merits of these funds by investors, particularly when it comes to the cost comparison with active open-end funds. At the beginning of this month, Morningstar noted that investors had poured $110 billion into US exchange traded funds in November alone and that even high yield bond ETFs reversed their year of outflows with a record $11 billion increase.

Cross-Border Payments

The cost and ease of executing cross-border payments remains a burning issue for businesses. Last year the G20 committed to improving existing payment infrastructures to support the requirements of the cross-border payments market in 2023.

A progress report published by the Financial Stability Board in October referred to ‘encouraging signs of progress’ but also acknowledged that there was a lot of work still to be done and that ‘continued action and commitment by the public and private sectors is required’.

In October, ECB executive board member Fabio Panetta said cross-border payments remained prohibitively expensive and sluggish and that while domestic payments are becoming instant and digital, cross-border payments have yet to benefit from the transformative power of digital technologies.

The Collapse of FTX

In the crypto space, the headlines at the end of last year were dominated by the collapse of FTX with FX Empire author Bob Mason suggesting that the ever-present threat of other crypto exchanges succumbing to liquidity crunches and bank runs would be a factor in the first half of 2023.

Others were confident the contagion could be contained. Chainalysis acknowledged that the unexpected potential collapse of an industry stalwart like FTX was a hugely negative development for cryptocurrency, but went on to note that ‘crypto has survived events like this before, emerged stronger, and gone on to reach new highs’.

Although a number of crypto-related businesses (including Genesis Global Capital, Gemini, BlockFi and the aforementioned Silvergate and Signature banks) were negatively impacted by the demise of FTX – and trading volumes on centralized exchanges declined by more than 20% in the third quarter – there have been no high profile exchange failures this year.

Continued Institutionalization of the Digital Assets Market

One forecast that has certainly comes to pass is the continued institutionalization of the digital assets market, with State Street just one of those referring to mature financial institutions entering the crypto industry in greater numbers towards the end of last year.

Coinbase’s 2023 digital assets outlook survey found that one-third of institutional investors increased their allocations to crypto this year. Only 8% of respondents to the 2022 survey said they expected crypto prices to trend higher in 2023, whereas 57% expect prices to rise next year. Crypto now ranks third after private equity and US equities as the best sources of risk adjusted returns heading into 2024 according to the survey respondents.

Earlier this year, Nitin Gaur (global head of technology and asset design at State Street Digital) expressed the hope that regulatory developments and increased government oversight would provide more clarity and stability to the crypto market.

Crypto Regulation

The US and Europe were widely predicted to take a major step forward in terms of crypto regulation in 2023. However, progress in the US has been stymied by a lack of joined-up thinking between the major regulatory bodies, although it has been widely reported that the SEC is minded to approve Bitcoin spot exchange traded funds early next year.

It has been a similar story in Europe despite the Markets in Crypto Assets Regulation (MiCA) entering into force in June. The third and final consultation package for the regulation will not be published until at least the first quarter of next year, which is important since this package will cover significant mandates with an 18-month deadline including qualification of crypto assets as financial instruments and monitoring, detection, and notification of market abuse as well as investor protections such as suitability of advice and portfolio management services.

Check out our summary of the year as we get ready for 2024.