![]() I tell my clients, “Inflation hasn’t gone away, but let’s stop debating what happened. The remaining third is a combination of monetary policy, subsidies, and spending by those better off who had saved over the past two years. Those two factors account for roughly two-thirds of the inflation increase. Those impacts hit businesses as well, which then pass those price increases along as best they can to protect their margins. The first reason is the direct impact of commodity prices and supply chain disruptions on consumer prices. ![]() Many articles attribute the unexpectedly high inflation to money printing and government subsidies. There is some disagreement about how we got to where we are. The UK and continental Europe received a smaller initial shock but are likely to see wage pressure later in 2023 and in 2024. I like to say that the labor market is a supply chain with feelings-it’s not going to just bounce back. The reason for that is clear: in the US, 21 million people lost their jobs between March and April of 2020, which created an enormous shock to the labor market, and we are still dealing with the repercussions. When we look at wages in the US and the UK, however, they have been increasing at two to three times the rate that we saw before the COVID-19 pandemic. That doesn’t mean we are at a good level, but we have turned a corner in terms of inflation acceleration. Sean Brown: What are the biggest macroeconomic headwinds companies face?Įzra Greenberg: Inflation has peaked in the US and likely in Europe, although there is continuing uncertainty there about energy prices. We are living in a world where the known unknowns are increasing and we can no longer say, “Let’s see what happens and then we will react.” I’m having those types of conversations with many of my clients. Ida Kristensen: At an event I recently attended, there was a debate about whether 2023 would be a year like no other. So my colleagues and I asked, what might happen next? In times of volatility, an insights edge is valuable because if no one knows what’s going to happen, being 10 percent more right 10 percent more often can be a real advantage. Inflation and low consumer confidence, for example, are layered on top of some overhangs from COVID-19 as well as trends like digital disruption and the sustainability imperative that we’ve been wrestling with for years. We have new shocks layered on top of old shocks layered on top of longer-term disruptive trends. Michael Birshan: It’s an unusual period of volatility. What makes it particularly important now? Sean Brown: The economic outlook is always a key business consideration. For more conversations on the strategy issues that matter, follow the series on your preferred podcast platform. This is an edited transcript of the discussion. Ida Kristensen is global co-leader of the Risk & Resilience Practice. Ezra Greenberg leads our work on macroeconomic scenarios and trends globally and is co-leader of strategic transformation services in North America. ![]() Michael Birshan is the global co-leader of McKinsey’s Strategy & Corporate Finance Practice and serves on the McKinsey Global Institute Council. KPMG experts from across our global network bring their insights into how banks can thrive in uncertain times.Ĭlick on any of the thumbnails below for a window onto the complex set of dynamics facing banks today as they ready themselves for life in the new reality.In this episode of the Inside the Strategy Roompodcast, three authors of a recent article on the economic outlook for 2023 and beyond discuss how businesses can prepare for what may be a challenging couple of years. In this series of both written and video materials, we discuss six macro trends that will be pivotal to banks’ future success. ![]() But for those that reimagine their operations, harness an increasingly digital economy, and manage their costs and risks, opportunities for growth could also be on offer. Difficult economic times lie ahead, customer defaults could rise and banks’ balance sheets and profitability face a squeeze. The key now is to retain those gains and build on them as we move through what KPMG describes as the 4 phase framework: from reaction, to building resilience, followed by recovery, and then arrival in a new reality. Customers and businesses view them in a new and positive light. In many ways, trust in banks is at an all-time high. ![]() At the height of the outbreak, banks across the globe played a fundamentally important role, supporting businesses and families by administering government-backed loans, providing additional liquidity and rapidly installing forbearance measures. COVID-19 has dramatically reshaped the world in which we live, with tumultuous economic and financial effects running alongside the public health emergency. ![]()
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