The 12th edition of the EIU's annual report forecasts growth and key risks in seven business sectors for 2023, as the war in Ukraine pushes up commodity prices and the cost of living. The report argues that the war has disrupted the recovery from the covid-19 pandemic, and businesses now face increased risks as economies slow or tip into recession, particularly in Europe.
The EIU's report also provides key global forecasts for each of the seven industries:
- Global sales of new vehicles will be flat in 2023, but sales of electric vehicles will rise by 25% to 10.7m units.
- In 2023 retail growth volumes will be respectable at 4.9% in US-dollar terms, which will mainly reflect high inflation. In real terms, global sales will slow or fall in most markets.
- Global energy consumption will rise by just 1.3% as the global economy slows. The energy crisis will force some countries to increase their use of coal or rethink plans to phase out nuclear power.
- Weakening economic output and rising interest rates will lead to more difficult conditions for banks, insurers and fund managers. Formerly fast-growing fintech companies will be hit by the capital-market crunch.
- Global healthcare spending will rise by 4.9% year on year in US-dollar terms, which will mask falling investment in real terms, as countries struggle to cope with continued demand.
- The metaverse will not become a mass-market in 2023, but this will not stop heavy investment into this technology. The drive to standardization and the battle with web3 will be at the forefront.
- International tourism arrivals will rise by 30% as China slowly loosens its covid-19 restrictions. This will follow 60% growth in 2022, but will still leave total arrivals below 2019 levels.
The EIU also presents the following key forecasts for each industry:
Automotive outlook 2023: Bright spots amid stalling growth
- Global new-vehicles sales will remain flat in 2023: new-car sales will rise by 0.9% and new commercial vehicle (CV) sales will fall by 1.3%.
- Sales of electric vehicles (EVs) will be the only bright spot, growing by 25%, but governments will restructure their incentive schemes.
- Governments' focus will turn to charging networks, which are inadequate to meet the expanding EV fleet.
- Autonomous vehicles will take a leap forward, as UN regulators lift their speed limit.
Consumer goods and retail outlook 2023: Retailers respond to pricing pressures
- The rollout of automation technologies will offer opportunities to limit wage growth, which means that retail employment is unlikely to return to 2019 levels.
- Online sales growth will slow, but the online share of retail will edge up to about 14% of global retail sales.
- Inflation-wary consumers will prefer to shop at discount stores, helping these retailers to increase their market shares.
- The economic slowdown in China, caused in part by its zero-covid strategy, will mean fresh challenges for global luxury brands already affected by the loss of Chinese tourists.
Energy outlook 2023: Surviving the energy crisis
- Despite decarbonization targets, coal consumption will grow marginally to compensate for gaps in gas supplies.
- More extreme weather events will force many countries to fall back on fossil fuels, delaying the energy transition.
- Renewable energy consumption will surge by about 11%, with Asia leading the way, but investment will weaken.
- The energy crisis will prompt some governments to backtrack on efforts to phase out the use of nuclear power.
Finance outlook 2023: A new test for financial stability
- The impact will be particularly acute in North America and Europe, where governments will offer support. The environment will be tough in Asia as well, although policy rates will rise by less.
- Heavily indebted developing countries will find it harder to refinance foreign debt, driving some to default or require rescues to avoid it. However, the International Monetary Fund will continue its lenient treatment of economies requiring its financing programs.
- The current capital-market crunch will hobble a wide variety of loss-making fintech challengers that sought to outflank incumbents in banking, payments and other activities.
Healthcare outlook 2023: The aftermath of the pandemic
- Digitalization of the healthcare system will continue, but the use of health data will come under stricter regulation in the US, Europe and China.
- Patent cliffs for key drugs and measures to control pharmaceutical pricing in the US, India and elsewhere will force some major pharma companies to spur growth through deals.
- Supply-chain disruptions will continue to push up drugmakers' costs, despite investment in more localized pharmaceutical production.
Technology and telecoms outlook 2023: The battle for digital supremacy
- Artificial intelligence (AI) will continue to develop, after several breakthroughs in 2022, but will encounter challenges from new regulations in key jurisdictions.
- Semiconductors will continue to be a geopolitical tool between the US and China, involving many other countries. Some companies producing the most advanced products and equipment will benefit.
- Asian telecommunications companies will continue to look for consolidation in 2023. Mobile markets with four or more mobile network operators, such as Sri Lanka, Japan and India, are the most likely to secure deals.
Tourism outlook 2023: Turbulence in the travel industry
- The economic downturn, sanctions on Russia and, above all, China’s zero-covid strategy will be among the factors weighing on the industry.
- Hotels, restaurants and airports will struggle to cope with labor shortages, wage demands, and high food and energy prices.
- Even so, international airlines are expected to return to profitability, benefiting from continued pent-up demand.
- The impact of climate change on the industry will become more apparent, with high temperatures, water shortages and floods forcing tourism destinations to take action.
Useful for companies developing their global business strategy for the coming year, the report presents the following macroeconomic key points:
- The war in Ukraine, combined with lockdowns in China, has exacerbated supply-chain disruptions and pushed up global inflation, forcing EIU to downgrade its forecasts for economic growth in 2023.
- Many governments, particularly in Europe, will be forced to scale back investment in public services, including healthcare, in order to protect households and businesses from the effects of higher prices.
- While some businesses (particularly in commodities sectors) will benefit from high prices, many will be hit by weak demand and high input costs, particularly for energy.
- Profitability will be squeezed, while corporate investment will slow amid rising interest rates.
- However, some companies (notably in pharmaceuticals, technology and retailing) will take advantage of lower stock-market valuations, bankruptcies and government incentives to snap up strategic assets and position themselves for an eventual upturn.
"Amid all this gloom," the EIU encouragingly says "there will be areas of opportunity." Taking the EV market as an example, "online retail sales and tourism will continue to deliver strong growth, particularly in Asia and the Middle East," the report notes. "Innovations—from the metaverse to automated vehicles and data analytics (notably in healthcare)—will attract investment, with some companies also seizing on chances offered by volatile financial markets." I concur that "It will not be an easy year, but it could be a transformative one."
Lastly, The Economist produced a video that looks into which stories may be worth watching in the coming year.
What will you be watching in 2023?
Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.