July 07, 2023

Q2 2023 market update: Global economy showing its resiliency

Uneven economic growth and slowing inflation marked the second quarter of 2023. Read on for our view of the global economy and financial markets.


  • Central banks move in different directions
    • The U.S. Federal Reserve Board (“Fed”) paused its interest rate at its final meeting of the quarter. The Bank of Canada (“BoC”) raised interest rates after two straight meetings of holding steady.
    • The People’s Bank of China reduced its key interest rates.
  • Uneven economic growth
    • The global economy posted muted growth in the first quarter.
    • In Canada and Japan, economic growth was stronger than expected. China’s economy grew faster in the first quarter compared to the previous quarter.
    • Growth slowed in the U.S. The European economy fell into a technical recession in the first quarter.
  • Stabilizing oil prices
    • Oil prices have fallen significantly this year. In response, the Organization of the Petroleum Exporting Countries (“OPEC+”) announced its intentions to reduce oil production.
    • At its June meeting, Saudi Arabia announced it would cut production even further.

Uneven economic growth

Global economic activity was relatively muted with different countries and regions growing at different rates.

Central banks are diverting in their paths to combat raising interest rates. The diversion may be temporary as all central banks want to reduce high inflation.

Uncertainty about the global economy persists in response to geopolitical tensions, high inflation and the likelihood of interest rates going higher.

How are major economies doing?

  • The U.S. economy grew by 2.0%
  • China’s economy expanded by 4.5% year-over-year
  • Europe’s economy contracted 0.1% and moved into a technical recession
  • Japan’s economy grew by 2.7%

Global equity markets mixed

Equity markets delivered mixed results across developed and emerging markets.

  • Global equities advanced. Technology stocks were a key driver of growth.
  • There were periods of volatility as U.S. lawmakers debated the U.S. debt ceiling.
  • Equities in Canada, the U.S., Europe and Japan advanced. The tech-heavy NASDAQ Composite Index provided a double-digit return.
  • Equities in China and the U.K. finished lower.

Global yields moved higher.

  • Global bond prices declined and yields advanced. The yield curve stayed inverted in many countries.
  • Canadian bond yields moved higher due to the BoC raising interest rates.
  • Oil prices dropped over the quarter.
  • Gold prices declined.

How is the Canadian economy doing?

Canada’s economy was resilient.

  • Canada’s economy grew by 3.1% (annualized) in the first quarter of 2023. Stronger household spending and net exports supported the economy.
  • The BoC raised its benchmark overnight interest rate by 25 basis points to 4.75%  at its second meeting. Canada’s economic growth surpassed expectations and inflation was still above the BoC’s 2% target.
  • Inflation dropped to 3.4% in May 2023, which is its lowest level since 2021.
  • Canada’s labour market remained strong but eased slightly in May. The economy lost jobs and the unemployment rate rose to 5.2% .
  • Canadian equities posted a small gain. The information technology and consumer discretionary sectors were the strongest performers. The information technology sector posted a double-digit gain.
  • Canadian bond prices ended the quarter lower. The yield on the 10-year Government of Canada bond advanced.

What can investors expect in the future?

Factor Outlook
Canadian interest rates With inflation high and economic growth proving robust, the BoC resumed its interest rate hikes. The BoC restated its commitment to bringing down inflation. A longer period of higher rates fis likely to persist.
Canadian real estate The Canadian real estate market improved early in the second quarter as the BoC paused interest rates. The recent rate increase could mute demand.
Canadian economy Canada’s economy expanded more than expected in the first quarter of 2023. Declining economic conditions elsewhere could hurt Canada’s economy given weak trade activity. The Canadian consumer has been the source of strength for Canada’s economy. Spending may continue to remain high assuming the labour market remains strong.
U.S. interest rates The Fed has said it may need to further raise interest rates to help bring inflation down and slow economic activity.
Weaker conditions in Europe Europe’s economy may struggle for traction amid elevated inflation, rising interest rates and geopolitical tensions.
Oil prices The price of oil may decrease if economic uncertainty persists and demand slows. Production cuts by OPEC+ may offset price declines. Any rise in oil prices could hurt Canadians at the pump and could push inflation higher.

This commentary contains information in summary form for your convenience. Although this commentary has been prepared from sources believed to be reliable, Sun Life can’t guarantee its accuracy or completeness. Plus, this commentary is intended to provide general information and should not be seen as providing specific individual financial, investment, tax, or legal advice. The views expressed are those of the author and not necessarily the opinions of Sun Life. Please note, any future or forward-looking statements contained in this commentary are speculative in nature and cannot be relied upon. There is no guarantee that these events will occur or in the manner speculated.

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