Inflation, interest rates and recession will dominate the US economic narrative in the first quarter of 2023, shifting in the second and third to a focus on recovery timing and more neutral monetary policy and, in fourth, if and when the Fed will usher in a new easing cycle, according to Triple-I chief economist and data scientist Dr. Michel Léonard.
“We forecast the US economy to grow 3.2% in 2023, up from 2.6% in 2022,” says Léonard. The US Consumer Price Index (CPI) ended 2023 at 6.5 percent year-on-year, down from a high of 9.1 percent year-on-year in June. “Triple-I expects inflation to continue to decline throughout 2023, though not by the same from one quarter to the next. The pace and extent of any slowdown in inflation is driven by improvements in global geopolitical risk.”
Underlying P&C growth, which has been below headline GDP since the start of the pandemic, is likely to grow at a faster rate than the rest of the US economy throughout the year.
“We remain cautious and forecast underlying insurance growth for 2023 to be around 3 percent, up from 2 percent in 2022,” says Léonard. “We forecast P&C replacement costs will increase 4.5% to 6.5% year-over-year in 2023. P&C replacement costs have increased on average 25% since the start of the COVID-19 pandemic. in 2020”.
Although Triple-I expects economic fundamentals to improve through 2023, line-specific underwriting considerations will continue to depress performance, Léonard says.
Triple-I members can access the Triple-I Economic Dashboard, available on the organization’s website. members only website. Continuous updates to the Dashboard allow insurance industry professionals to follow key economic reports (eg, federal government updates on interest rates, unemployment, and housing trends) in real time, adjust forecasts, and recalibrate strategy. Each quarter, the Triple-I Perspective provides a roadmap for which key economic reports will have the greatest impact on insurance industry performance.
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