An electoral year in a context like no other

Forecasting is not an exact science, but in economics it is an indispensable exercise. Anticipating trends in order to make the best decisions (especially political ones) at the right time is of the utmost importance. The work of prediction draws on the lessons we have learned from the past and the challenges posed by the present.

At the start of this year, the Council of the European Union’s analysis and research team compiled and summarised some 20 predictive studies for 2023 carried out by various media outlets, research institutes, think tanks and insurance companies from around the world. This is valuable work, as it gives us an overview of the challenges we face.

In 2022, the war in Ukraine gave rise directly and indirectly to major economic upheaval. It therefore comes as no surprise that forecasters throughout the world have focused their attention on geopolitical issues in 2023. They are envisaging a stalemate in the war between Russia and Ukraine. Some analysts even comment that it will be impossible for the conflict to end unless there is a change in government on both sides. Meanwhile, Russia is expected to continue to shut down its economy and restrict its gas exports even further, posing a considerable challenge for European countries. From an Asian standpoint, this weakness has already been fully identified. In the view of Chinese analysts, liquified natural gas imports will not be able to compensate for the loss of Russian gas.

Are we heading for a global recession?

Energy market tension is still likely to be the main factor dictating the course of inflation this year. Analysts believe that this inflation will act “as a key driver of a global recession”. Naturally, all eyes are therefore turned towards the central banks. But the uneven dynamics of the recession could cause different institutions to provide a wide variety of responses. Some major central banks might be forced to revise their price stability objectives.

The monetary turmoil that has begun, especially the strong dollar and scarcity in the supply of cereals due to the war in Ukraine, is likely to have serious political, economic and social consequences in poorer countries.

Several African countries are increasingly exposed to default, in the view of these analysts. So there are genuine systemic risks. Of course, the possibility of another financial crisis has been raised by numerous economists worldwide. They are calling on regulators to focus on countries whose markets could unleash crisis on a large scale, instead of on specific financial products.

Fresh priorities

With war now entrenched for the long term on Europe’s doorstep, nations have been impelled to reconsider their defence strategies. This trend will become even more pronounced in 2023. It will include a significant increase in military budgets (including to counter cyberattacks and sabotage), a review of supply sources and a shift in alliances.

Concern is mounting because other regions of the world are threatening to go up in flames: the situation in Iran is a powder keg, tensions between Greece and Turkey are escalating in the Aegean, and the whole world is afraid that China will invade Taiwan. In this regard, forecasters are instead predicting that the bullying will intensify. Although there remains one major unknown: how will the United States react?

This year, therefore, everyone is keeping a close watch on China. This is not only because of the region’s geopolitical risks, but also because the buoyancy of the global economy will be closely linked to the strength of China’s post-Covid recovery. On this point, economists are divided. There are some, concerned by the new wave of the pandemic occurring in early winter, who predict a moderate upturn. Others forecast growth in excess of 5%, stimulated by consumer spending.

Forewarned and forearmed against external shocks

In this globalised economy, the European Union is seeking to protect itself from external shocks. The Covid crisis and the war in Ukraine have prompted leaders to take action to shore up Europe’s energy and industrial self-sufficiency. According to Bloomberg, “access to everything from food to energy, technology and even water” will drive economic statecraft in the coming years. In 2023, and in the years that follow, there will thus be much talk of energy investment, industrial reshoring and belt-tightening.

Politicians must also respond to the monumental challenge posed by climate change. Economists all over the world fear that the pace and effectiveness of the green transition to mitigate climate change will prove insufficient. Setting aside the long-term repercussions for humankind, the rapidly growing number and intensity of natural catastrophes directly related to climate disruption represent a serious risk for our economies in the short term.

Contributing to the public debate

The economic, financial, political, geopolitical, societal and environmental risks to which we are exposed are immense. Not having a crystal ball, we must position ourselves to confront the risks and rise to the numerous challenges – which can sometimes also offer opportunities. Against this backdrop, characterised by mega-trends and enormous unpredictability, an important democratic milestone for our country is approaching: the general election in October 2023.

The aim is to make Luxembourg a model of resilience, social cohesion and sustainable growth, attractive and competitive, benefiting current and future generations. In order to limit our vulnerability, we must have the courage to adapt our legal and regulatory framework to the challenges of the moment, taking into account the needs of business. Open to a constantly evolving world, our economy must become more flexible, adaptable and robust.

To guarantee the success of its economic model, Luxembourg must learn from the succession of crises and trials we have seen in recent years. The Chamber of Commerce has compiled the main concerns of businesses ahead of the general election. With 30 concrete proposals, thematic booklets and round-table discussions, the Chamber of Commerce is contributing to discussions on how our economy can be made more attractive and competitive. The challenges are considerable, particularly as regards supplying fresh talent for the labour market, successfully effecting the environmental and digital transition, and cutting business costs. The Chamber of Commerce is offering its solutions to serve as a strategic compass for top-priority, pro-business action. Over the next few weeks, it will be presenting them to the general public and discussing them with representatives of the political parties.

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