TFS Gulf 
- Will the rate of inflation and recession be out of control in 2023?
- We spoke to Robin Banerjee, President and CEO of Caprihans India and Author of CORPORATE FRAUDS: BIGGER, BROADER, BOLDER.
- Here’s how 2023 will pan out for the world economy, according to Robin.
Intro…
2023 started off on a high note but took a turn for the worse when the news of the recession, layoffs, and major cybercrimes started spreading.
Systems of Indian start-up giants such as Oyo, Byju’s, as well as the Competition Commission of India, and the All India Institute Of Medical Sciences – AIIMS were hacked.
In our GetReal series, we spoke to Robin Banerjee, a seasoned Finance Professional and currently the CEO of Caprihans India. This session includes the topic 2023 for businesses and finance professionals.
Here are the excerpts from the interview…
There has been speculation about the possibility of a recession in 2023. What are your thoughts?
In theory, a recession occurs when there is negative Gross domestic product (GDP) growth for two consecutive quarters.
If you look at the S&P 500 Index, you’d see that over the last three months, the number went up by 3%. The popular stock market index in Europe, FTSE 100 also saw a growth of 9% over the last few months.
Even if you observe the BSE Index in India, the numbers have gone up by 9% in the last six months. The stock market performance probably wouldn’t have looked up if there were a recession going on.
Exports of goods and services (% of GDP) in India were reported at approx. 20%. The rest 80% is the internal demand. These indicate that the Indian economy is likely to grow.
However, some countries will face headwinds, especially the countries that are export-driven such as some Middle Eastern and South East Asian countries.
The world is still trying to get out of the ruckus that was caused by Covid and the ongoing Russia-Ukraine war. Consumption demands will still be challenged due to this.
So will there be a recession? In my opinion, there is going to be a mild recession in parts of the world.
What is the expected inflation rate for 2023? Will it spiral out of control?
Inflation happens when there is more demand for goods and services, but less supply. The cost of goods and services in an economy thus goes up.
Russia, one of the biggest oil exporters cut off its supply to many European countries, resulting in an increase in crude oil and natural gas prices.
Food prices skyrocketed as Ukraine and Russia, two of the major suppliers of millets and wheat did not export as required.
From August to September of 2022, many people thought that the world would end because of this disorder.
However, the stats indicate something else.
According to the West Texas Intermediate (WTI) Index, an oil market benchmark representing oil produced in the United States, the oil price was around 120 USD per barrel in March 2022.
In January 2023 it dropped down to approx. 80 USD.
As per the Brent Crude Index in March 2022, crude oil prices were about 123 USD per barrel. Today it is approx. 85 USD.
(Brent Crude is the benchmark for the European, African, and Middle Eastern crude oil markets)
Now let’s look at energy and its most important aspect, natural gas prices.
In August 2022, when the discussion of the recession actually started, the natural gas price was 6 USD per MMBtu. In January 2023, it dropped down to 3 USD per MMBtu.
(MMBtu is an acronym for Metric Million British Thermal Unit. The unit is widely associated with the measurement of natural gas in energy terms globally.)
Both crude oil and natural gas prices have flattened. Did you know why?
- Europe was able to store natural gas as per its requirements.
- Europe garnered these materials from sources other than Russia.
- The winter in Europe has not been so harsh. Therefore, heating requirements have been lower than what people had expected.
Europe’s headline inflation was at 10% in October. Today it has come down to 9%.
In various parts of the world, the headline inflation is approx. 5-6%.
Most economists want this rate to be less than 2%.
Chances are that it may not come down to 2%, but would hover around 3-4% for the entirety of 2023.
The prognosis? Inflation is likely to be under control.
Will countries see increased interest rates in 2023?
Central banks around the world enhance interest rates to control inflation.
When the war started and goods and services prices started going up, many central banks had one idea in mind.
They thought “If we hike interest rates then the cost of production will go up and the demand for goods and services will go down. Because of this lesser consumption will take place, and prices will be under control.”
The average global rate of interest is around 5% as of now. If the average rate goes up by 1%, the GDP of the world will go down by 1%.
The average rate of inflation in the US is around 4.2-4.5%. It will most probably go up by 0.2% this month. The interest rates are believed to reach 3% in 2024. Other countries will follow suit soon after.
The rate of inflation in India is at around 6.2%. Chances are that it will go up to 6.75%, or perhaps 7% by the end of this year.
According to my calculations, it will reduce by 1-2% in 2024.
How does China affect the economic prognosis of 2023?
China announced that it is retracting the Zero Covid policy, and because of this, the country is opening back up.
Chinese people are sitting on two and a half trillion USD of collective savings.
There are some plausible explanations for this. Due to Covid, like most people in the world, they were also not able to travel or spend on goods and services properly.
Imagine if China starts spending parts of its savings. Their rate of consumption would go up hence, other countries have to start supplying, including China.
China’s Real Estate market also seems to be getting back on track. These above-mentioned factors could make the world run faster.
Is investing in Renewable Energy going to be the next Big Thing in 2023?
In 2022, the United States passed a law called ‘The Inflation Reduction Act of 2022’.
The purpose of the federal law is to reduce inflation by lowering the deficit, reducing prescription drug prices, investing in domestic energy production, and supporting sustainable energy.
The legislation is expected to raise approximately 740 Billion USD, of which about 400 Billion USD will be spent on clean energy and sustainability.
India is predicted to spend a trillion USD on green energy over the next few years. Many wealthy Indian businessmen have announced individual investments of 70-80 Billion USD into green energy or hydrogen fuel.
This is a great opportunity for other nations to get involved in the growing market of sustainable energy.
Which areas will have a high demand for finance professionals in 2023?
The news of people losing jobs is everywhere.
Layoffs are happening at an immense rate, especially in big tech companies such as Meta, Amazon, etc.
But with a new world shaping up, demand for finance professionals will increase from three sources.
The first one is Fund or Finance generation.
The Second area where Finance Professionals would be in demand is management accounting, system control, governance, etc.
Big Data, Artificial Intelligence, and Blockchain technology are also three spaces that Finance Professionals can look at.
Finance Professionals are the best when it comes to understanding numbers, and Big data, and AI is all about numbers. Therefore, they should enroll in a relevant institution such as Harvard Business School specializing in Big Data, Blockchain, and AI.
Another area where they should look at is Cyber Security or Forensic Auditing. Cybercrimes are one of the biggest threats right now.
Learn how to handle cyber threats by implementing effective internal and external controls.
The IT department will surely handle this area but we being the accountants understand finance better.
This combination of Financial knowledge and cyber expertise would make you valuable to the organization.
Closing…
If we take the abovementioned pointers into consideration, then yes, the economy of the world will probably not see any major downsides.
2023 will pan out to be significantly good for businesses than the last two years. But there are still some areas that businessmen and finance professionals need to keep a close eye on.
Crude Oil Prices, Political Scenarios, China’s relationship with its neighboring countries, Covid or other pandemics, and Climate Change, will determine the future of the business world in 2023.
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