Global Economy at ‘Historic Crossing Point’
McKinsey and Company economist Ezra Greenberg says the global economy is at a “historic crossing point,” as it emerges from the COVID-19 pandemic.
“It is difficult to say if the economy will get better or worse than before COVID, but there is no doubt it will be transformed,” he told more than 300 business leaders at CBIA’s Sept. 23 The Connecticut Economy conference.
Greenberg [pictured above] shared five critical factors impacting the recovery:
- A changing world order, including Russia’s invasion of Ukraine and U.S. competition with China
- COVID’s impact, including China’s response to the virus, and corporations focusing more on stakeholders
- Demographic shifts such as Baby Boomer retirements in the West and reaching global “peak child”
- Technology changes, including the rapid acceleration in virtual communication brought on by COVID and innovations in AI
- Climate change, most notably the shift from fossil fuels to renewable energy
Greenberg urged business leaders to consider the various outcomes brought on by these changes, ranging from a steady and beneficial outcome to grappling with a disruptive and difficult economy.
“For your business, you need to understand whether or not you’re going to change your actions depending on what scenario works out,” he said.
“The reason to think about different scenarios is not to complicate your life. It’s to identify those really important things that, if things go one way or another, you really have to pay attention to.”
Greenberg said he expects Connecticut’s economy to largely keep pace with overall U.S. GDP growth through 2025.
However, “consumers are also in a really bad mood,” he added, referencing McKinsey research showing consumer sentiment at its lowest point since 1953.
That pessimism is primarily due to skyrocketing inflation, which is encouraging consumers to save rather than spend.
“Just because consumers have the firepower doesn’t mean they’re going to go out and spend,” Greenberg said.
CBIA and Marcum’s 2022 Survey of Connecticut Businesses found that 75% of Connecticut businesses raised prices due to inflation, 64% eroded margins, and 23% had to cut back on investments.
In addition, only 26% projected growth in Connecticut’s economy over the next year, while just 8% believe the state’s business climate is improving.
Greenberg noted that while the acceleration of inflation was behind us, the U.S. economy is now stuck at a very high level that the Federal Reserve is trying to manage.
Greenberg said the Federal Reserve’s stance now is that a recession may be necessary to get inflation under control, which will result in rising unemployment.
Greenberg urged business leaders to “use the lessons of history” to overcome current uncertainty, sharing five suggested actions:
- Deploy a new playbook as you face an inflationary or recessionary environment
- Prepare for both entry and exit from the recession
- Use scenarios to prepare for the future, instead of just error-prone forecasts
- Enhance the finance of your business to prepare for uncertainty
- Take action now and focus on resilient growth
“The businesses that have been successful in the past in these situations are businesses that are active in the face of uncertainty,” Greenberg said.
“That means productivity, that means balance sheets, that means trying to understand what their opportunities are, and that means preparing for the upturn as well as the downturn.”
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