Inflation, interest rates and recession will dominate the US economic story in the first quarter of 2023, and in the second and third quarters the focus will shift to the timing of recovery and a more neutral monetary policy and, in the fourth, if and when the Fed will signal the start of a new easing cycle, according to Triple-I Chief Economist and Data Scientist Dr. Michel Léonard.
“We forecast that the US economy will grow by 3.2 percent in 2023, up from 2.6 percent in 2022,”; Léonard said. The US consumer price index (CPI) ended 2023 at 6.5 percent year-over-year, down from a high of 9.1 percent year-over-year in June. “Triple-I expects inflation to continue to decline throughout 2023, but not as much from one quarter to the next. The pace and extent of any decline in inflation will depend on improvements in global geopolitical risk.”
Underlying P&C growth, which has been below overall GDP since the start of the pandemic, is likely to grow at a faster pace than the rest of the US economy throughout the year.
“We remain cautious and forecast underlying insurance growth for 2023 at around 3 percent, up from 2 percent in 2022,” Léonard said. “We forecast claims costs to increase between 4.5 percent and 6.5 percent year-over-year in 2023. Claims costs increased an average of 25 percent since the start of the COVID-19 pandemic in 2020.”
Although Triple-I expects financial fundamentals to improve in 2023, line-specific underwriting considerations will continue to weigh on performance, Léonard said.
Triple-I members can access the Triple-I financial dashboard, available on the organization’s members-only website. The dashboard’s ongoing updates allow the insurance industry to follow key economic reports (eg federal government updates on interest rate, unemployment and housing trends) in real time, adjust forecasts and recalibrate strategy. Each quarter, Triple-I’s Outlook provides a road map of which key financial reports will impact the insurance industry’s bottom line the most.
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