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Preparing for a Probable Recession in 2023

“Every person on TV says recession. Every economist says recession. I’ve never seen anything like it.”

Mark Zandi, chief economist, Moody’s Analytics

2023 is looking increasingly fragile, as Covid rampages through China and an increasing number of experts voice fears of a recession in the new year.

Economists are veering towards a consensus, putting the chances of a recession at a high 70% (according to a Bloomberg survey published on 20th Dec.)

The highest risk is seen for Britain, the Eurozone, and the United States – in that order. Australia is either well-placed or living in a bubble, depending on who you speak to, as the prediction for Australia is a 30% risk of a technical recession. The Australian share market remains fairly optimistic, and is trending 40% above its 2006 high.

But the overall message for business is clear: now is the time to go back to the basics and put everything in place to ride through a probably rough 2023.

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Recession Probability
Chart via David Ingles of Bloomberg TV. (As of 28 Dec 2022)

According to MIT Sloan researchers, resilience, local agility, and portfolio agility are key to building a path out of a recession.

The highlights of their advice to firms include:

  • Build a strong balance sheet. Diversify cash flows.
  • Boost the ability of individual business units, functions, product teams, and geographies to respond quickly and effectively to changes in their local circumstances.
  • Improve your capability to quickly and effectively shift resources across different parts of your organisation.

Innovation will become far more important than in any normal year, although we haven’t had many of the latter in the recent past. Cost-cutting, including more of the layoffs already occurring in Silicon Valley, will also be significant.

Research firm Forrester predicts in its forecast for the banking sector that, in 2023, “Banks will redirect 60% of innovation spend to tangible, real-world innovation. Two ways lead out of a recession: Innovate your way out, or rampantly cut costs…”

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But is economic gloom inevitable in 2023?

According to Harvard professor Jeffrey Frankel, fears of recession may be overblown. In a piece written for the Guardian this week, Frankel points out: “While the Organisation for Economic Co-operation and Development and International Monetary Fund expect global growth to plunge to 2.2-2.7% in 2023, from 6.1% in 2021, that still leaves the world economy unlikely to shrink for consecutive quarters… a 2023 global recession is hardly a foregone conclusion. Is it possible? Of course. But it is also entirely avoidable.”

And that’s a better, more positive note with which to conclude this article.

Here’s wishing everyone a much happier 2023 than the dark predictions suggest!

At MyTreasur-e, we keenly track social, economic, and financial trends that can impact our customers. Our passion for anticipating and managing risk in all its forms is what accounts for our customers’ satisfaction with our cutting-edge treasury and risk management solution.