McKinsey and Company economist Ezra Greenberg says the global economy is at a “historic tipping point” as it emerges from the COVID-19 pandemic.
“It’s hard to say whether the economy will be better or worse than it was before COVID, but there’s no doubt it will change,” he told more than 300 business leaders at CBIA’s Sept. 23 conference, The Connecticut Economy .
Grunberg [pictured above] shared five critical factors affecting the recovery:
- A changing world order, including Russia’s invasion of Ukraine and US competition with China
- The impact of COVID, including China’s response to the virus, and companies becoming more stakeholder-focused
- Demographic shifts such as baby boomer retirements in the west and reaching global peak child
- Technological changes, including COVID’s rapid acceleration of virtual communications and innovations in AI
- Climate change, particularly the shift from fossil fuels to renewable energy
Greenberg urged business leaders to consider the diverse outcomes these changes will bring, from a stable and beneficial outcome to confronting a disruptive and difficult economy.
“For your business, you need to understand if you’re going to change your actions based on what scenario works,” he said.
“The reason for thinking about different scenarios is not to complicate your life. It’s about identifying the really important things that you really need to pay attention to when things are going either way.”
Greenberg said he expects Connecticut’s economy to broadly match overall U.S. GDP growth through 2025.
“But consumers are also in really bad mood,” he added, citing McKinsey research showing consumer sentiment is at its lowest level since 1953.
This pessimism is primarily due to skyrocketing inflation, which is encouraging consumers to save rather than spend.
“Just because consumers have the firepower doesn’t mean they’re going to go out and spend,” Greenberg said.
The 2022 Survey of Connecticut Businesses by CBIA and Marcum found that 75% of Connecticut businesses have hiked prices due to inflation, 64% have eroded margins, and 23% have had to cut investments.
Additionally, just 26% predict Connecticut’s economy will grow over the next year, while just 8% believe the state’s business climate will improve.
Greenberg noted that although the acceleration in inflation is behind us, the US economy is now stuck at very high levels that the Federal Reserve is trying to manage.
Greenberg said the Federal Reserve’s stance now is that a recession may be needed to bring inflation under control, leading to rising unemployment.
Greenberg urged business leaders to “use the lessons of history” to overcome the current uncertainty and shared five proposed actions:
- Deploy a new playbook when faced with an inflationary or recessionary environment
- Prepare for both entering and exiting the recession
- Use scenarios to prepare for the future instead of just error-prone forecasts
- Improve your company’s finances to be prepared for uncertainty
- Act now and focus on resilient growth
“The companies that have historically been successful in these situations are companies that are active in the face of uncertainty,” Greenberg said.
“That means productivity, that means balance sheets, that means trying to understand their opportunities, and that means preparing for both the upturn and the downturn.”