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Todd Hirsch: Five Economic Trends to Watch in 2023

Todd Hirsch: Five Economic Trends to Watch in 2023

At this point, it’s a tired, old cliché: we live in times of great uncertainty. Unless you’ve just arrived in a time machine from a hundred years ago, you know that our volatile, uncertain, complex and ambiguous world isn’t getting any more predictable in 2023.

The economy has been a particular focus of this unpredictability. What trends and topics can we expect in the coming year? Some of them are simple continuations of what’s led up to this point. Others are newer developments born of emerging events and situations around the world.

1. Geopolitics will continue to threaten the global economy

Everything changed with Russia’s invasion of Ukraine in 2022. Conflict, war, military skirmishes, and even loss of life are, of course, not new. But when a G8 country actively invades another free, democratic, and sovereign country, the game board shifts. Not only will eyes remain fixated on Russia, but also China, North Korea, Saudi Arabia, and Iran.

The troubling shift in geopolitical tensions impacts the economy in several ways. It can drag down consumer and business sentiment. It disrupts global supply chains, both because of potentially blocked shipping ports and trade embargoes. It also necessitates increased government spending on military, which shifts tax dollars away from more productive areas like education, research, and infrastructure.

2. More severe weather events will impede economic activity

The debate about climate change has focused on how to reduce carbon emissions — and particularly, who should bear the burden of higher carbon taxes. But lost in the cacophony of COP 27 and other finger-pointing conferences are the higher costs of dealing with more destructive weather events at present, i.e., more violent hurricanes, destructive floods, and extreme heat and cold.

Even if there is some faint hope of avoiding the worst-case climate change scenarios in the long term, the short term is essentially unalterable. That means we need to brace ourselves for more droughts, more floods, more fires, and more of everything that impedes economic activity.

3. Higher interest rates will peak and even start to fall by the end of 2023

This is both good news and bad news. The good news is that, in all likelihood, inflation will start to fall — maybe not all the way down to the 2% target, but low enough that central banks should be able to lighten up on the brake pedal of higher interest rates (the one they’re slamming on at present).

The bad news is the opposite side of the coin. Inflation will fall because of an almost inevitable recession in 2023. The only question is how severe the global recession will be. Central bankers and policymakers are hoping for the mythical “soft landing” where the GDP contracts only slightly for a short period of time. But given the enthusiasm with which central banks are jacking up interest rates, a more severe global recession seems more probable. In fact, a full-blown financial crisis and panic in currency and bond markets lurk as possibilities.

4. Labour shortages will ease

This may be one of the most positive trends in 2023, at least for employers. As measured by the unemployment rate, the job market has actually been too tight for the better part of the last year. This came as a surprise to economists who had watched unemployment rates spike well into double digits at the onset of the pandemic.

But once COVID restrictions started to lift, the economy came roaring back. What didn’t come roaring back were the workers. That will change when the economy slides into recession. Not only will workers be a bit less choosy, but employers will not need to fill as many positions. The unemployment rate will drift higher and the job market will regain some balance.

5. Employees’ relationships with their jobs will continue to change

For most of 2022, businesses have struggled to find workers. “Where did everybody GO?” was the HR question of the year. The better question they should be asking though is, “Why don’t people want to work here anymore?” That’s a more difficult and uncomfortable question.

Long before COVID, workers had been re-thinking their careers. Our relationship with our jobs, our income, and our employers has evolved. While a good paycheque may have been sufficient in the 20th century, today’s workers also want engagement, involvement, and even fulfillment in their jobs. That may sound self-indulgent to Baby Boomers and Gen Xers, but it’s the reality of the 21st century.

Does the world seem any less safe, stable, or predictable than it did to people in 1961 (think Bay of Pigs), 1973 (think energy crisis), 1983 (think Cold War), or 2008 (think Bear Stearns)? In a way, volatility and unpredictability have always been the headline. And that might bring us some reassurance when we peer into 2023. It’s going to be a bumpy ride, but we’ll make it through.

For more than 25 years, Todd Hirsch has worked as an economist for such renowned institutes as ATB Financial and the Bank of Canada. With a front row seat to the key issues and trends impacting and transforming the economy, he delivers dynamic, clear-eyed talks that explore new ways to think about the economy in order to thrive in a permanently uncertain world.

Contact us to learn more about Todd and what he can bring to your next event.