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A Review of 2023


Better to be Lucky than Right


Inflation and the General Economic Situation


On inflation – so far so good for my predictions. Inflation has fallen; perhaps slightly faster than many thought. We have reached the stage where further reductions in inflation are harder to accomplish. What inflation actually is has been debated less that I expected in the year. I had assumed the variable way inflation is felt by sectors and by societies, given the outcomes do not exactly accord with how many think about inflation, would lead to more debate about how to measure and account for inflation. It has not. The next phase of the debate will be on pay restraint and blame on external factors or bogeymen.


Low growth came in about par. Germany has suffered more than some expected, but will recover somewhat in the coming year. The new year feels that recent history will re-exert itself: low growth in Europe, longer term issues in UK, US ok, Asia moderating growth and beginning a faster transition to service led growth.


The possible banking crisis failed to materialise. This may be no surprise with hindsight. Harder to guess this time last year. Markets ended the year more positively – both for direction of interest rates and risk markets – than I would have expected. I think the possibility of rate cuts will now help keep the market moderately positive, despite slowly rising credit losses.


Wars


I failed to see the Saudi-Iran proxy war take an Israeli-Hamas dimension. Unfortunately RussianUkraine has continued as expected; and there were no surprises in the Far East. The deterioration in general international relations – triggered by specifics of course – continue, with the knock on effect on the economies and trade generally.


Another area where the fall-out is big but easy to forget is migration. Migration to Europe especially – and the fear of such in the USA – is affecting politics in many European countries very significantly. I don’t think the populist political swing has finished yet.


Science


The themes I laid out at the beginning of the year remain in play. Climate action – which should be front and centre – will become a very political and economically divisive area. New gains in materials, batteries and fusion will develop, but slowly. Quantum computing will also develop slowly, the stability issues (of qubits) remaining problematic, but some very specific uses may come to the fore. Digitisation is coming very quickly to the financial markets even if it is easy to fail to see it.


Conclusion


The world is not a safer place at the end of this year than the start of it. But I don’t think it is necessary much more dangerous, though this does depend on where in the world you are living.


Generally we have muddled through some possible financial pitfalls this year, but as is usual the wider cross-national issues remain hard to deal with. In the next few years the prisoners dilemma problem of climate change action will mean average world temperature rises are at the higher end of hope and prediction. Best to start getting prepared.


This is a rather short summary of 2023. It's already 2024 – so I need to get on in putting down some guesses for what interesting things may happen this year.


Lewis O'Donald


31st January 2024

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