Every year arrives with two distinct emotions -- relief and hope. Relief stems from the idea that the milestone passed signals change. And hope, often an ephemeral sentiment, springs from what Aristotle called the waking dream.
As we enter into 2023, the trillion dollars poser is what does the year come bearing, what does it promise? Typically, a new year is ushered in with a parade of predictions by soothsayers and pundits. It doesn’t quite matter that quite often the crystal ball conjectures dissipate midway. As Daniel Kahneman observed “The illusion that we understand the past fosters overconfidence in our ability to predict the future.”
The quest to know what lies ahead is an existential imperative for the human psyche. In 2023 expectations and the preferred phraseology of predictability, stability, and sustainability are challenged by a confluence of disruptive factors - geopolitics, fears of recession, Covid-19 variants, shifting demography and climate change. The sustenance of hope and emergence of fears is riveted to the potential trajectory of tectonic shifts which could follow.
The top X factor triggering the ‘What If’ question, as we begin the year, is the reemergence of Covid-19 infections and threat to lives and livelihoods. In the past two months the count of daily cases as per data published by WHO has risen from 2.5 million to 3.8 million – mind you while the surge in China is in the headlines the WHO figures reflect cases from other countries. Travel restrictions have limited utility as history reveals the virus doesn’t respect national boundaries.
Typically viruses mutate in the effort to evade immunity. The Centre for Disease Control in the United States has listed 17 active sub variants of Omicron. While the BF7 variant is visibly active in India, in the US the XBB 1.5 variant which triggered rising hospitalizations accounts for over 40 per cent of the infections. It is true deaths are low but it's early days. Much depends on the quantum of testing and genome tracking to assess the efficacy of vaccines as also for policy measures. The reappearance of masks and mock drills reflects the spectre of fears.
The global economy is scarcely in a position to deal with a redux of 2020 or another crisis. The struggle to contain inflation and sustain growth represents the second ‘What If’ factor. Central bankers flying blind to atone for past sins hiked interest rates . The consequence is manifest. The $ 200 billion fall in Elon Musk’s wealth triggered voyeurism but the fact is billionaires lost $ 1.4 trillion as indices slid – the NASDAQ by 33 per cent and the S&P 500 by nearly 20 per cent.
In fact, globally, 61 of the 87 stock indices reported negative returns for 2022. On Friday, India’s Nifty50 ended the year with a gain of 4.33 – the seventh successive year in positive. The ‘what if’ question haunts Indian investors as FIIs pulled out over $ 16.5 billion in equity as fixed income rates rose in developed markets.
Rising cost of capital is showing up in data on trade, national debt and global growth. A recent UNCTAD report states the “slowdown that began in the second half of the year is expected to worsen in 2023 as geopolitical tensions and tight financial conditions persist”. Five out of seven G7 countries and seven of the G20 economies report debt to GDP ratios of over 100 percent.
Ratings agency Moody’s expects “real GDP growth of the G-20 economies to decelerate to 1.3% in 2023 and adds that “Over one-third of the 143 sovereigns we rate will have economies that are at least 8 per cent smaller in real terms in 2023 than we expected before the pandemic. The IMF and World Bank have trimmed the forecast for every major economy. Indeed, the World Bank has in a recent paper asked the question ‘Is a global recession imminent?’ The answer, as Bob Dylan would say, is blowing in the wind.
Straddling the spectrum -- the possible return of the life-threatening pandemic and the impact of recession on livelihoods -- is the lethal potential of uncertain geopolitics. There is no visible end to the war in Ukraine – which has exposed and exacerbated economic vulnerabilities -- and intelligence reports suggest Russia is readying 200,000 troops for a major ‘ground offensive’ by the spring of 2023. If and when the escalation takes shape it threatens to widen the rift between global blocs and expand the duration of inflation and slowdown.
And it is not just the Ukraine war which is in play in the geopolitical landscape. There is also China’s declared plan for annexation of Taiwan. At the October party congress China’s president Xi Jinping mentioned Taiwan 21 times in his speech, promised to never “renounce the use of force” and underlined the agenda of national reunification as an “unshakeable commitment”. Game theorists are computing the probability of when this could be – reports including one citing US Navy Naval Operations Chief Mike Gilday suggest it could be as early as end of 2023 to thwart the next elections in Taiwan. The disruptions are in the realm of the plausible and are pregnant with grave implications.
Karl Von Clausewitz once said that although humans long for clarity and certainty “our nature finds uncertainty fascinating”. Welcome to 2023, the What If Year.