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Economic growth has slowed globally in the face of escalating inflation rates, interest rate hikes, a pull-back from investors, and supply chain disruptions due to the ongoing conflict in Ukraine. These have put the global economy in a precarious position as it teeters on the brink of the second recession within a decade.
While developing countries like Sub-Saharan Africa are projected to grow by a meager 1.2% in 2023, the outlook is even bleaker for developed countries, with predicted growth of as little as 0.5% this year. But, how much this will impact you depends very much on where you live, so if you’re curious about your financial outlook for 2023, consider whether you live in one of the countries already amid economic decline.
What is behind the economic slumps?
Inflation rates worldwide have risen much higher than forecasted for an unusually sustained time. Inflation usually is very transitory and stabilizes fairly quickly; however, in recent months, inflation rates have remained consistently high. These have pushed the cost of everything from food, clothing and fuel to mortgage rates as interest rates were hiked to suppress inflation. Higher living costs have forced people to cut back on spending to make ends meet, resulting in lost revenue for businesses offering products that do not fall within the “essential items” category. As a result, retailers, the automotive industry, airlines, hospitality establishments and even tech companies have been forced to cut back on staff to stay afloat.
The war in Ukraine has deeply impacted Europe’s economy as they have been faced with several shortages as production and exports are halted. If we look at the UK, one needs to simply walk down the once bustling Oxford Street to understand it is in the midst of a serious crisis. Instead of being met by the enticing window displays of stores like Top Shop and River Island, you will find many of these stores abandoned, turning the high street into a ghost town. Looming blackouts due to the energy crisis, transportation delays, political turmoil and fuel shortages have led to extensive financial fallout, making it evident that the UK and Europe are in a slump.
Tighter control over monetary policies and government spending has been suggested to be one of the factors contributing to a gloomy outlook for the USA in 2023. For almost a decade, tech companies have ridden the wave of success, but that all changed in 2022 as mass layoffs began, indicating financial trouble brewing. Tech giants like Microsoft and Twitter have laid off thousands of employees to streamline operations and reduce overheads to remain afloat. Moreover, as inflation rates rise and consumers have less disposable income, sales across the board have declined sharply, with big names such as Lowes, General Motors, and Halliburton Oil all undertaking mass layoffs.
While its economy has always been rocky, ongoing power cuts of up to 10 hours daily have forced it into freefall. In addition, the country has been rocked by hardship since the pandemic, with widespread looting costing the economy billions in 2021 and devastating floods causing extensive infrastructure damage in 2022.
Unsurprisingly the rand has weakened against almost all currencies, and seven out of 10 of the country’s highest income-generating industries contracted in Q4 of 2022. These sectors included finance, mining, tourism and manufacturing. As a result, GDP shrunk by 1.3% in the same period, pushing the country to the brink of a recession in the first quarter of 2023. Moreover, with political instability, lack of investor confidence and an escalating energy crisis making running a business in South Africa exceptionally challenging, the outlook for Q1 of 2023 looks bleak.
While we naturally always assume it is developing countries that are in dire economic straits, first-world countries are not immune to recessions. When superpowers like the United Kingdom and the United States come under serious strain, it undoubtedly drives the lesson home. The ongoing effects of these economic slumps remain, but it is wise to make smarter decisions with money and stick to a strict budget as economies stabilize.