An Economic Forecast for 2023.

Consumer Confidence

Two main factors affect consumer confidence and the resultant demand for consumer goods. These are income stability, and the overall cost of living. When income stability is high and the cost of living is relatively low, consumer confidence is high. This results in active spending and allows for economic conditions to flourish. Consumer confidence flounders when income is unstable and the cost of living is relatively high. This impacts not only consumer spending levels but also consumer spending habits. For example, retail verticals such as grocery and medical tend to remain stable in terms of spend. However, consumer behaviours may favour some businesses within these verticals over others, for example, budget supermarkets over traditional supermarkets. Luxury industries are even less stable. Retailers that specialise in non-essential items such as clothing, travel, jewellery and electronics become at greater risk of unfavourable economic impacts.

 

Contributing Factors

This fluctuation in consumer confidence and subsequent fluctuation in spending gives us strong indicators for what to expect from the economy in 2023. Other significant economic impacts include the consequences of Brexit and COVID-19, the Russia-Ukraine war and subsequent economic sanctions imposed as a result, and the knock-on effects of these events. These include the collapse of global trade particularly with respect to tourism, mass redundancies globally, rising unemployment rates, uncertainty in the investment markets, nuclear threat, and food & energy insecurities. When inflation increases, as is the case currently in a global context, central banks raise their interest rates to slow the economy, with the goal of bringing down inflation. With higher interest rates, the recession’s probability increases, leading to redundancies, fewer jobs, and decreased consumer and corporate spending.

 

The Forecast for 2023

World bank indicates that the global economy is projected to grow by just 1.7% in 2023, down by 95% in advanced economies, and nearly 70% in emerging markets and developing countries. Growth in 2024 is expected to be around 2.7%. This sharp downturn is expected to be widespread.

“The crisis facing development is intensifying as the global growth outlook deteriorates. Emerging and developing countries face a multi-year period of slow growth driven by heavy debt burdens and weak investment as global capital is absorbed by advanced economies with extremely high government debt levels and rising interest rates. Weakness in growth and business investment will compound the already-devastating reversals in education, health, poverty, and infrastructure and the increasing demands from climate change.”

– World Bank Group President, David Malpass.

Subdued investment is a likely result of this scenario, which is a serious concern as it is associated with weak productivity and trade and lessens overall economic prospects. Without strong and sustained investment growth, making meaningful progress in achieving climate-related goals and broader developmental milestones becomes less and less likely.

 

Conclusion

The forecast for the coming 24 months is a sobering one. Although this may be so for some industries over others, it is important to understand the underlying influences on the broader economic context and the realities faced by developing nations and their people in particular. Businesses have a responsibility to understand and prepare for the coming recession to minimise its impacts on their own people, and communities globally.

 

Tips for Recession Proofing Your Business

Unfortunately, there is no way to 100% protect your business from economic factors but there are things you can do to meet them head-on. The worst thing you can do is stick your head in the sand, hoping everything will blow over and things will go back to the way they were. History is littered with examples of businesses that attempted that, relegating them to nothing more than lessons of not what to do with their achievements often being forgotten.

The key is to be prepared, and realistic of the coming changes and willing to pivot when needed. Streamlining decision-making processes and having options ready to go mean you can adapt quickly and easily. Time waits for no man.

You can find more on preparing your business for an economic recession in this article. It offers ideas and steps to help with getting the business prepared and offers advice on how to keep the wheels turning.