When the year 2022, which fortunately is now history, has taught one thing, it is humility. After all, the worries that Germans had at the turn of the year twelve months ago – an abating pandemic and inflation that had risen to five percent – seem manageable in retrospect. On the other hand, very few saw the great catastrophe, the Russian war of aggression with all its humanitarian and economic consequences, coming. Because of experiences like these, one should be careful if someone stands up today and pretends to know exactly how things will go in 2023 for Germany and the world economy.
But even if the world as a whole has become more unpredictable, a few trends and tendencies can be identified.
1. The old normal – low inflation and low interest rates – will not return in 2023. Global core inflation excluding energy and food prices has recently risen to more than six percent. So the high prices have spread, not only because of expensive raw materials, but also because of increased procurement costs and labor shortages in the leading economies. The major central banks will continue to work against this megatrend with their interest rate policy, but anything but a slow decline in inflation would be a big surprise.
2. The world economy will go through a phase of weakness, especially in the first half of the year, and will hardly grow any more. The right and important fight against inflation by the central banks and the ongoing war in Ukraine are taking their toll. There is a lack of major impulses that could compensate for this. More than a third of the global economy will shrink, the three largest economies – the United States, the European Union and China – will continue to stagnate, write the economists at the International Monetary Fund in their latest forecast. They conclude, “In short, the worst is yet to come, and for many people, 2023 will feel like a recession.”
The consequences of climate change will not simply fade away
3. China is the big uncertainty factor. In addition to Russia, the second largest economy in the world will also make the headlines in 2023. In the first few weeks of the year it should become clear whether the U-turn in Covid policy will continue to paralyze the economy due to the millions of infections or whether the turnaround will be a liberation. If China were to open up more to foreigners again in the long term, German companies would benefit from this. It should not be forgotten that the Chinese threat of attack against Taiwan is still in the air. Should the unpredictable head of state Xi Jinping actually get serious, the world would face completely different problems than those described above.
4. Investing in crisis resilience will cost governments a lot of money. Governments face a double challenge in 2023. On the one hand, they have to cushion the consequences of excessive inflation for their citizens this year as well. On the other hand, they have taken up the cause of better arming themselves against future crises. Production should be brought back, important raw materials should be secured or mined at home. The intensifying competition between locations is also tempting governments to introduce new subsidies. All of this costs money, weakens growth dynamics and, in the worst case, fuels inflation. It should therefore be a central concern for the German export nation in particular to defend globalization as best as possible.
5. The consequences of climate change will not simply fade away. Although no one knows whether there will be huge floods in Pakistan and droughts in southern Europe again, the trend over the past few years is clear. Extreme events are on the increase, and they are also having an ever-increasing impact on business opportunities. In addition to the fight against climate change, it will therefore become more important globally to arm yourself against the consequences of global warming.
It’s quite possible that the world will have a very different theme in 12 months from those described here. After the years of the pandemic and the war, it’s hard to imagine – but maybe we’ll be positively surprised one day.