The Roaring Twenties are now over. time to get real

What to expect in 2023? It’s hard to believe that the post-COVID world would eventually herald a new consumer-driven boom worthy of the Roaring Twenties.

Instead, crises ranging from war to inflation have accumulated and triggered various overlapping shocks. Some call it a “polycrisis”.

Societies have proven remarkably adaptable. Inflation is showing signs of easing – a relief. However, strategists at Pictet Asset Management still expect global growth to slow to 1.7% in 2023, with stagnation in most developed economies and an outright recession in Europe.

The “realistic” 20’s sound less, but that’s a more likely prospect for next year.

On the financial markets, through interest rate increases, investment foam and euphoria that were worthy of flapping were violently brought down to earth. Cryptocurrencies, unprofitable technology and real estate have been hammered and will remain unloved. Pension funds investing in risky three-letter trades like FTX (crypto) or LDI (derivatives) have learned costly lessons.

Political realism also sets in. Instead of promoting radical solutions, governments and policymakers are being pushed towards the economic mainstream in the aftermath of this bursting of leveraged market bubbles. This is exactly what happened during Britain’s mini-budget crisis, which wiped out the heavy spending of Brexiteers.

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States need to tread carefully to pursue credible economic policies without deepening the recession.

Meanwhile, major global investment challenges for the future like the energy transition are encountering a reality check of their own. The COP27 was a disappointment from a European perspective with little progress towards achieving the goals. The EU is silent on energy, spending billions to replace Russian natural gas.