Five Factors Will Make 2023 A Difficult Year For Global Markets
Analysts agree that global markets face significant hurdles. Energy is in short supply and high demand, so prices are rising, and developing countries are getting worse as they try to recover from the epidemic. In 2023, the International Monetary Fund predicts that one-third of the global economy will be in recession. The following year will be rough for the markets, with inflation, a lack of energy, and general instability. Those who bring warnings are seldom well-liked. Cassandra did herself no favors by warning her fellow Trojans about the Greeks and their wooden horse. But because the financial markets are so unpredictable, it is essential to take a sober look at economic facts.
——There are five essential—and interconnected — concerns that portend disaster for global asset markets in 2023, with the realization that investors have no clear options in unstable conditions. Every choice has trade-offs.
Net energy shortages
If the political and economic situation doesn’t change, fossil fuel shortages will likely last until next year’s winter. Because of the conflict in Ukraine, sanctions have cut back on Russian supplies, and an explosion that damaged part of the Nord Stream 1 pipeline damaged Europe’s energy infrastructure. It can’t be fixed because it takes time and money to build new infrastructure and because ESG regulations make it hard for energy companies to justify large-scale fossil fuel projects.
Once China emerges from its COVID-19 slowdown, the already robust demand will only expand. The record increase in renewable energy and electric cars has helped. But there are constraints. Renewables need materials such as lithium, cobalt, chromium, and aluminum that are difficult to get. Constructing new nuclear power reactors takes years, and gaining public support may be challenging.
Reshoring of production
In the wake of the virus and Russia’s invasion of Ukraine, economies worldwide want to get back to business. In short to medium term, bringing jobs back from low-cost offshore locations will raise wages for skilled workers and cut corporate profit margins in high-income countries. This could be good for the economy in the long run, but it takes money, work, and trained workers to bring jobs back home.
Transition to a commodities-driven economy
The same problems that led to the reshoring movement have caused countries to look for safer, greener ways to get raw materials from within their borders or the borders of their allies. In recent years, mining essential rare earth has been outsourced to nations with plentiful, inexpensive labor and lax tax rules. When these operations move to high-tax and high-wage countries, the way raw materials are bought will need to be rethought. This will lead to an increase in exploration spending in several countries. It may result in changing trade alliances among nations unable to source goods domestically.
We might expect these alliances to show how the world’s politics are changing from a unipolar to a multipolar system (more on this below). Because of this, the U.S. may find it harder to get the goods it now gets from Asia.
Given these forces, it is doubtful that inflation will decrease very soon. This is a big problem for central banks, and their favorite way to control prices is through interest rates. As a result of globalization falling apart, higher borrowing rates won’t make much of a difference now that we live in an age of long-term inflation and mismatched supply and demand. In the past, inflation ended when prices got too high for people to afford, which caused demand to drop (also called “demand destruction”). This process is easy when it comes to spending money on things you don’t have to, but it’s hard to spend money on energy and food. When consumers and businesses have no choice but to pay the rising prices, there isn’t much that can be done to stop the prices from increasing. This is especially true since many governments help consumers buy these necessities by giving them money.
Accelerating the decentralization of essential institutions and systems
This fundamental change is the result of two reasons. First, supply chains were messed up, monetary policy was tightened, and wars started changing the global geopolitical order. Second, a lack of trust in institutions worldwide was caused by a disorganized response to COVID-19, economic problems, and a lot of false information. Countries that used to think of the U.S. as the world’s thought leader and enforcer of the international order are now questioning this view and making regional connections to fill the void.
— 🥷 Gokhshtein Media (@gokhshteinmedia) November 14, 2022
In the meantime, distrust in institutions is on the rise. According to a Pew Research Center poll, Americans are becoming more skeptical of banks, Congress, big businesses, healthcare institutions, and each other. The fact that protests are getting more prominent in the Netherlands, France, Germany, Canada, and other places shows that this is a global problem. This discontent has also contributed to the growth of far-right populist politicians, most recently with the victory of Georgia Meloni in Italy.
During the epidemic, the rate of homeschooling increased. Web3 was created to provide an alternative to conventional platforms. It has also sparked a rising interest in alternate service delivery methods. It has also sparked an increasing interest in alternate service delivery methods. Take the Bitcoin BTC ticker down to $16,975 to see the community’s efforts on the Beef Initiative, which aims to link customers with local producers.
Waves of decentralization have historically followed periods of high centralization. Consider the fragmentation of the Roman Empire into local fiefdoms, the back-to-back revolutions of the 18th and early 19th centuries, and the emergence of antitrust laws across the Western world in the 20th century. Everybody saw the disintegration of monolithic constructions into component sections. The gradual trend of centralization then resumed.
Revolutionary technologies are speeding up the current change. Even though the process is not novel, it is disruptive for global markets and society. Ultimately, global markets thrive on the capacity to predict outcomes. When the fundamental basis of customer behavior is going through a phase transition, it becomes more challenging to do this. These indicators point to a future in which only the prudent and opportunistic investor will prosper. Therefore, tighten your seatbelts and prepare for the journey.