Domen Zavrl has extensive experience in international business, with expertise in structured financing, securitisations, real estate development and commodities trading. This article will assess the current economic volatility from geopolitical and macroeconomic factors and their impact on the business environment in 2023.

In January 2023, strategy and corporate finance specialist McKinsey & Company published a report indicating that energy prices had peaked. The report also suggested that inflation was no longer accelerating and economic growth appeared to be holding up, indicating that these positive signs pointed towards a narrower range of potential macro outcomes.

Nevertheless, the McKinsey & Company report conceded that geopolitical tensions were still running high, with key supply and demand imbalances still unresolved and interest rates on an upward trajectory. Against this backdrop, the report speculated that business leaders might be drawing comparisons to the 1970s, pointing out that the big-picture question for business leaders was if their companies would ever return to a pre-pandemic-like world or if there had been a permanent reset with uncertainties multiplied. The attached PDF takes a closer look at the impact of the COVID-19 pandemic on the global economy.

Addressing the issue of whether it was possible for the world to get back on a path to long-term prosperity, McKinsey & Company’s report explored a range of different macroeconomic scenarios for 2023 and beyond. These scenarios assessed potential favourable and not-so-favourable long-term economic outcomes, delineating shorter-term choices that could have a significant impact on what path the global economy might take. The attached video takes a closer look at what macroeconomics is, exploring the history of this field of economics.

The report published by McKinsey & Company addressed the top issues of 2022, namely inflation and labour market dislocations, assessing that the best companies and leaders navigating these volatile times were both aggressive about pursuing the upside and prudent in managing the downside.

The report revealed that consumer prices rose by almost 16% in the United States between March 2020 and November 2022. Within the same timeframe, prices also rose by 16% in India, compared with 15% in the United Kingdom and the eurozone, and a staggering 21% in Brazil.

Disruptions in gas, oil and basic food markets combined with demand mismatches have been a driving force behind inflation. In addition, supply chain dislocations, commodity shocks, raised business material costs, slowed production and doubling of wage growth have also been contributory factors. The attached infographic contains some interesting statistics about global inflation in 2023.

In its 2023 Global Macro Outlook report, Morgan Stanley predicted weakened growth, with declining inflation rates and an end to rate hikes, enabling the United States to narrowly avoid a recession. Meanwhile, the global financial institution predicted green shoots of economic recovery across Asia and Europe. The Morgan Stanley report predicted that global inflation would reach its peak in the fourth quarter of 2022, with slowing demand, price discounts and declining house prices all serving to temper inflation, which in turn could prompt major banks to pause and reflect on their recent historic string of rate rises.

Key takeaways from Morgan Stanley’s Global Macro Outlook for 2023 included predictions that:

  • Emerging markets economies should make a modest recovery
  • European economies, including the UK, are likely to contract
  • The US economy will tread water, at 0.5% growth

In the report, Morgan Stanley Chief Global Economist Seth B. Carpenter indicated that the preceding 12 months had seen the fastest increase in the Federal funds rate since the 1980s. However, as consumer goods supply chains recover and labour markets see less friction, he predicted a broader and sharper fall in inflation, implying higher growth globally.