5 reasons 2023 will be a tough year for global markets

People who come to give warnings are not popular. Cassandra did herself no favors when she told her fellow Trojans to beware of the Greeks and their wooden horse. But, with the financial markets facing unprecedented turmoil, it is important to take a deep look at the economy.

Experts agree that markets are facing headwinds. The International Monetary Fund has predicted that one-third of the world’s economy will collapse in 2023. Energy is in high demand and in short supply, prices are high and rising, and inflation and economic growth are coming out of trouble.

There are five important – and interconnected – factors that cause problems for the financial markets in 2023, and I understand that in an environment of uncertainty, there are no clear decisions for investors. Every choice requires a trade-off.

Lack of general energy

Absent significant changes in political and economic conditions, the oil shortage is likely to continue into the coming winter.

Russia’s resources were reduced by sanctions related to the war in Ukraine, while infrastructure in Europe was severely damaged when an explosion damaged part of the Nord Stream 1 pipeline. It is irreversible because new infrastructure takes time and money to build and the ESG role makes it difficult for companies to electricity will justify large oil projects.

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Meanwhile, the already strong demand for energy will only increase once China emerges from the COVID-19 recession. Documenting the growth of renewables and electric vehicles has helped. But there are limits. Renewables require hard elements to be produced such as lithium, cobalt, chromium and aluminum. Nuclear can ease the pressure, but new plants take years to bring online and public support can be difficult.

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Productivity changes

The risks caused by the pandemic and Russia’s invasion of Ukraine have led to a desire in major economies to restart maritime operations. Although this can be a long-term support for domestic growth, recycling requires money, time and the availability of labor.

In the short to medium term, the relocation of jobs from low-cost offshore areas will lead to inflation in high-income countries as it raises wages for skilled workers and reduces corporate profits.

Transition to a resource-driven economy

The same disruptions that led to the resurgence have led countries to seek safer — and greener — sources of energy to produce within their own borders or those of allies.

In recent years, the world’s most important mines have been outsourced to countries with cheap labor laws and lax taxation. As these routes move to areas with high taxes and high wages, the search for equipment needs to be re-evaluated. In some countries, this will lead to increased research costs. For those who can’t find the products at home, it can lead to a change in the business relationship.

We can expect such cooperation to reflect the country’s transition from a global system to a multilateral one (more on that below). For example, many countries in the Asia Pacific region will have the opportunity to prioritize the interests of China over the United States, which means that the US will get products that now come from Asia.

Constant inflation

Due to these problems, inflation is unlikely to slow down any time soon. This poses a serious problem for central banks and their favorite tool for controlling prices: interest rates. Big lending will have less power now that we have entered a period of economic growth, with supply/demand imbalances resulting from the unfolding globalization.

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12-month changes in the Consumer Price Index (CPI), 2002-2022. Source: Bureau of Labor Statistics

Past inflation has ended when prices rose to the point of unaffordability, which led to a fall in demand (destroyed demand). The process is straightforward when it comes to smart shopping but it gets complicated when things like energy and food are involved. Since consumers and businesses have no choice but to pay higher prices, there is little chance of easing the pressure, especially since many governments are subsidizing consumer purchases of these products.

Improving the distribution of organizations and large systems

This dramatic change is driven by two factors. First, the restructuring of the world political system was affected by broken chains, tight monetary policy, and conflict. Second, the global decline in trust in institutions caused by the chaos caused by COVID-19, the financial crisis and the growing disinformation.

The first point is important: Countries that used to look to the United States as a leader of ideas and promoters of the system are questioning this integration and filling the gaps in the relations between them.

Meanwhile, mistrust of institutions is growing. A Pew Research Center survey found that Americans are increasingly suspicious of banks, Congress, big business and the health care system — even against each other. The growing protests in the Netherlands, France, Germany and Canada, among others, show that this is a global phenomenon.

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Such disagreements have also led to the rise of the far-right, most recently in Italy with the election of Georgia Meloni.

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It has also led to increased interest in alternative treatment options. Homeschooling grew during the pandemic. Then there is Web3, designed to provide a traditional alternative. Take a job in the Bitcoin (BTC) team at the Beef Initiative, which aims to connect consumers with local farmers.

In the past, more centralized periods were followed by waves of decentralization. Consider the disintegration of the Roman Empire into local governments, the successive reforms of the 19th and early 19th centuries and the rise of antitrust laws in the West in the 20th century. the division of monolithic materials into components. Then the gradual process of centralization began again.

Today’s revolution is being accelerated by revolutionary technology. And while this process is not new, it is disruptive – both to markets and to people. Markets, after all, thrive on the ability to calculate outcomes. As the fundamentals of consumer behavior change, this becomes increasingly difficult to do.

Taken together, all these developments point to a time when conservative and opportunistic investors will come out on top. So buckle up and get ready to ride.

Joseph Bradley is the head of business development at Heirloom, a start-up program. He started in the cryptocurrency industry in 2014 as an independent researcher before working at Gem (which was acquired by Blockdaemon) and then moved to the hedge fund industry. He received his master’s degree from the University of Southern California with a concentration in real estate/financial management.

This article is for informational purposes only and is not intended and should not be taken as legal or financial advice. The opinions, views and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.


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