(Top four factors that will keep the World on tenterhooks through 2023.)

"If wishes were horses, beggars would ride".
A Scottish proverb dating back to 1628.

The wisdom of old sayings can hardly be disputed. And the proverb quoted above just about sums up the crux of copious commentaries about 2023 appeared so far in major newspapers and publications. A key takeaway from such scholastic works written to ring in the new year was the conspicuous absence of ebullience among authors who by force of habit chose this time of the year to come out with their Wishlist and optimistic predictions about what is in store for you and me through the year ahead.

Though it may be wrong on any one’s part to find fault with them for portraying the future in bright colours, it needs to be said that, most of these forecasts often go awry by the time we reach the year-end. As the realities of the post-COVID world started sinking in, making predictions and forecasts untenable, the visionaries might have realized albeit in the hard way that loftiness is a one-way ticket to failure.

Having said that, there are still some events, many of which are the spillovers from last year, that will have a durable impact in swaying decisions and shaping incidents in 2023. Here are a few of them that were found to be more plausible, if not possible, that would serve as some food for thought for readers. Please read on.

Fear of War(s)

Russia's war in Ukraine - an ongoing incident - will have a lasting influence on all the major decisions the world may take in 2023. This is because we are hearing, seeing or reading different versions about the progress’ of war in Ukraine depending on which side of the battlefront one belongs to. To say the least, though both sides of the war are claiming victory day in and day out, one thing that stoke fear across the world is the anxiety about the war taking a catastrophic turn, meaning a nuclear incident or accident since the conflict zone is replete with atomic installations and one of the belligerents is a known nuclear super power. Since the second order derivatives of the war are well documented and still unfolding, there is no point in repeating them here.

Though the Russia-Ukraine war is the chief concern for now, there are other signs of heightening geo-political frictions elsewhere. Israel with its newly installed far right coalition government assert that the Jewish nation is battle ready to take on the so-called threat from its bete noire the Islamic Republic of Iran. Though this is a mere public posturing designed for the consumption of followers of Islamophobia is yet to be seen, it nevertheless has frayed the nerves elsewhere.

And there is also a recent escalation in tensions across the 180-kilometer-long Taiwan Strait between the island nation and its big brother neighbour People’s Republic of China. Though the acrimony between the two nations is more of a legacy issue, the recent statements by some Western powers that read like abetting conflict or veiled threats and outright provocations, something that they could desist from to avoid any unpleasant eventualities in the future.

Undoubtedly, the first casualty of higher prices is the general public. And it is burning a hole in the pockets of everybody with people living in the lower bracket of income taking the hit most. Red hot prices of essentials are also fueling public unrest across geographies which if left unaddressed may lead to regional instabilities.

Inflation Shock to Persist

It is now a cliche to say that the immediate fallout of the Russia-Ukraine war was the disruption of supply chains leading to sky high prices of essentials. However, to say that this pain will persist through the current year till a peaceful solution to end the hostilities is found need not sound prophetic. An influential publication like Time Magazine found it fit to flag persisting high inflation as one among the top ten risks that the world is risking in the current year. This is a shared concern for the world with multilateral agencies too listing higher price levels as one of the chief concerns for the world in 2023.

Undoubtedly, the first casualty of higher prices is the general public. And it is burning a hole in the pockets of everybody with people living in the lower bracket of income taking the hit most. Red hot prices of essentials are also fueling public unrest across geographies which if left unaddressed may lead to regional instabilities.

Last year, thousands of people took to the streets to protest sky high prices of essentials underlines the gravity of the situation. A report by global news agency Reuters a couple of months ago chronicled the unfolding political side effects of inflation in at least 15 nations across continents. A slew of agencies under the United Nation (UN) also warned that rising prices could land millions in many parts of the world, especially in sub-Saharan Africa, to a state of near famine which may snowball into political turmoil in those countries in the future.

Interest Rate Risks

Another factor that will make lives miserable for millions is the higher interest rates that are not going to go away any time soon. Going by the latest minutes of the US federal Reserve (the Fed), the world will have to live with high interest rates for a longer than expected period. With no respite coming in 2023. This is because the mighty members in the Fed’s board of governors did not believe that the recent moderation in prices of essentials could be construed as durable. Therefore, the Fed will stay the policy course’ by keeping on increasing interest rates through 2023.

“No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023 A number of participants emphasized that it would be important to clearly communicate that a slowing in the pace of rate increases was not an indication of any weakening of the Committee’s resolve to achieve its price-stability goal or a judgment that inflation was already on a persistent downward path. Participants noted that, because monetary policy worked importantly through financial markets, an unwarranted easing in financial conditions… would complicate the Committee’s effort to restore price stability”, the FOMC minutes for December reads. This simply means that the US central bank will keep rising interest rates till the job market cools and prices stabilize to the threshold level of 2%.

What it means for Americans is their business but its implications for people elsewhere is grave. The Fed rate actions in the future will force the arms of other central banks including RBI to keep lifting policy rates so as to keep the interest rate differentials to the minimum. From the point of view of central bankers this is a policy imperative to prevent any sudden dollar outflow – also known as capital flight. This will also translate into higher monthly payouts for loans of any type pinching the common man. This restrictive policy will also wipe out demand for goods and consumables to a greater extent pushing other countries into the recessionary zone.

Though a slowdown in global growth or a recession to use an economist’s jargon, is well anticipated for some time now, the IMF chief’s warning not only amplified the fears but also made countries like India with considerable dollar revenue coming from exports vulnerable to output, job and income losses. Drying up of export dollars in turn will put pressure on their delicate external balance sheet and fuel domestic price pressures further transmitting through higher cost of imports.

Looming Recession

The net effect of higher inflation and elevated interest rates will be a slowing down in economic growth with many seeing a recession round the corner though timing it is found to be difficult. Latest to ring the alarm bells is none other than Kristalina Georgieva, the chief of the International Monetary Fund (IMF). She has literally cancelled 2023 by saying that recession would hit a third of the world economy this year.

In her New Year message to the world conveyed over the US broadcaster CBS she minced no words by saying that the new year is going to be tougher than the year we left behind. The reason, according to her, is the simultaneous shrinking of three big economies – the US, the EU and China - which are considered as engines of global growth. She went on to warn that even countries that are not in recession, it would feel like recession for hundreds of millions of people.

Though a slowdown in global growth or a recession to use an economist’s jargon, is well anticipated for some time now, the IMF chief’s warning not only amplified the fears but also made countries like India with considerable dollar revenue coming from exports vulnerable to output, job and income losses. Drying up of export dollars in turn will put pressure on their delicate external balance sheet and fuel domestic price pressures further transmitting through higher cost of imports.

However, there may be a silver lining in the otherwise darkening cloud that global commodity prices may soften as demand from three largest economic blocks dives. That may be a reason for relief, not for cheers, for countries like India.

Job Cuts

Needless to say a recession will trigger widespread unemployment with axe falling mostly on unorganized sector workers. This should be a major worry for India since a large chunk of people are employed in this sector. We will soon start hearing words like pink slips, furlough, benching, sacking etc. across industries including technology, finance and banking. Already tech giants from Adobe to Amazon have announced their plans to sack thousands of employees across geographies and that include India as well. This massive layoffs in turn may depress real wages in countries like India further as the patchy labour market will shrink further.

Going back to the beginning, the events that enumerated above may be the reasons for commentators to desist from exuding exuberance while writing about what may be in store for you and me going forward this year. Any of these factors or a combination of them could wreak havoc for multitudes in 2023. But then there is hope that things would change for better as we progress into the year.

It may be ideal to conclude this otherwise gloomy narrative by citing a couple of lines from Arthur Hugh Clough, the 19th century British poet who famously wrote:

“Say not the struggle nought availeth,
The labour and the wounds are vain,
The enemy faints not, nor faileth,
And as things have been they remain.
If hopes were dupes, fears may be liars;
It may be, in yon smoke concealed,
Your comrades chase e’en now the fliers,
And, but for you, possess the field.”

So, if you are a die-hard optimist, believe in hopes and say no to fears. Or simply say hopes are not dupes. This is not to dispute the age-old wisdom of the proverb “If wishes were horses, beggars would ride.” Which one is right only time can tell.