Risks to consider in 2023
Naturally, the economic forecasts for coming months are subject to a wide range of risks. The main risk is that inflation may be more persistent than expected, due to the appearance of either second-round effects or new shocks. If this scenario were to occur, central banks would be forced to increase interest rates even further. This scenario of higher inflation would cause significant declines in activity, which could lead to social tension and result in populist and counterproductive economic policy measures. Given the slowing inflation rates of recent months, this scenario is now less likely.
Other risk factors stem from the uncertainty over the Chinese economy, due to the combination of the effects of the zero-COVID policy and the adjustment of the real estate sector. However, this risk also seems to be waning given the support measures adopted by the government to prevent the collapse of the real estate development sector and the relaxed restrictions in response to new coronavirus outbreaks.
The succession of intense and unprecedented global crises that have rocked the global economy since 2020, such as the pandemic, disruptions in global production chains, the war in Ukraine and high inflation rates, are causing significant changes in the world order, both geopolitically and financially. The geopolitical risk remains latent, as does the possibility of financial accidents.
Following the whole process of trade and financial globalization of previous decades, we are now witnessing changes to that process and new globalization formulas. The diversification and relocation of production to countries that are closer, geographically and politically, is gaining traction. We are also seeing the adoption of protectionist measures, as the US is already doing with its inflation reduction act (IRA). Autonomy and security are gaining prominence over costs in this new order. And the era of great moderation may lead to another era of greater volatility.
And while we're facing all these risks, we also have to tackle the challenges of digitization and climate change, which represent a huge opportunity, and the problems of demographic changes, aging populations and immigration. Thus, many questions are being asked about how the global economy will be structured, how we will get there, what impact it will have on global growth and who will be the winners of all these processes that are now underway.
