After two rather turbulent years for many global economies, investors and analysts are looking ahead to next year and trying to predict some of the economic changes we may see.
It’s not easy to calculate 12-month predictions, as that’s an incredibly long time for economies. A lot can happen, however, based on what we’ve seen over the past 12 to 18 months, we’re going to make five economic predictions that could prove true next year, and give you our reasoning for each.
After consecutive periods of inflation in Western economies, we are likely to see a return to normal inflation or, in some cases, deflation. But what is deflation and how does it work? Deflation is an economic mechanism by which the cost of current services and products decreases. Long periods of deflation can lead to higher unemployment, lower demand and stagnant or reduced economic activity. It is not considered an economy-wide phenomenon and most often occurs after a period of high inflation. The IMF expects inflation to slow in 2023, which is at least good news.
As a result of periods of poorly managed economic policies, including external factors such as Russia’s invasion of Ukraine, the price of crucial commodities exploded in Europe. These countries were using Russian oil and gas to fuel homes and businesses in the region. When Russia decided to limit this supply due to sanctions imposed on it, inflation entered double digits in the U.K. for the first time in over 35 years. Personal finances, such as personal savings and investments, are the most affected by inflation, so we could see deflation next year if the situation improves.
Don’t be fooled
Sorry to be the bearer of bad news – it looks like the economic situation is here to stay for at least another 6 to 12 months. This is due to a combination of factors, including what we mentioned above. In addition to the lack of business investment, stagnation or negative growth will likely remain on the horizon for some time. If there is a change in government in the Western countries, which adopts different policies, as well as a ceasefire in Ukraine, this prediction may be more manageable in the coming months.
The R-Word – Recession
I feel like we are only bringing negativity to this article today. Economic growth is a given for those who grew up in the West in the early 2000s, but given the subtle balance of disappointing market factors, don’t be surprised to see another recession hit America, the UK and the rest of Europe at least sometime in 2023.
The UK, US and many European nations are generally considered the wealthiest nations that consistently operate at the top of the growth rankings. However, given the current state of the economic market, this view has changed. While many other countries are affected, some Asian economies are considered green shoots that can be used to protect investments from poor economic prospects.
U.S. will stay on top
Over the past decade, economists have predicted that China would overtake the United States in the rankings of global economic superpowers. All agreed that this transition would occur at some point between 2020 and 2030. However, as a result of China’s recent zero-covity policies, the economy is expected to shrink. With the U.S. economy back on track after the 2020 mega-shock, these predictions are now being pushed back.