RV ECONOMIST INTELLIGENCE Outlooks 2023

Geo-Economic & Industry
Outlooks 2023:
Collection Of 17 EIU Briefs
March - December 2022

1. Worldwide Cost Of Living 2022: How Soaring Inflation
Has Affected Prices Globally
2. Risk Outlook 2023: Ten Risk Scenarios That Could Reshape

The Global Economy
3. Africa Outlook 2023: Resilience Amid Disruption
4. Asia Outlook 2023: Mixed Prospects For Regional

Heavyweights
5. Europe Outlook 2023: The Threats To Europe’s Industrial

Competitiveness
6. Latin America Outlook 2023: Spotlight On New

Governments
7. Middle East Outlook 2023: Weathering Political And

Economic Headwinds
8. North America Outlook 2023: Economic Headwinds

Approaching
9. Horizon For Africa-China Relations: Why Co-Operation

Will Be Essential
1. Industry Outlook 2023: Challenges, Opportunities And
Trends To Watch In Seven Sectors
2. Automotive Outlook 2023: Bright Spots Amid Stalling

Growth
3. Consumer Goods And Retail Outlook 2023: Retailers

Respond To Pricing Pressures
4. Energy Outlook 2023: Surviving The Energy Crisis
5. Finance Outlook 2023: A New Test For Financial Stability
6. Healthcare Outlook 2023: The Aftermath Of The Pandemic
7. Technology And Telecoms Outlook 2023: The Battle

For Digital Supremacy
8. Tourism Outlook 2023: Turbulence In The Travel Industry

Worldwide Cost
of Living 2022
How soaring inflation has
affected prices globally
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WORLDWIDE COST OF LIVING 2022
HOW SOARING INFLATION HAS AFFECTED PRICES GLOBALLY
How soaring inflation has affected prices globally
Key findings
• EIU’s latest Worldwide Cost of Living (WCOL) survey shows that prices have risen by an average
of 8.1% in local-currency terms over the past year in the world’s biggest cities. This is the fastest
rate for at least 20 years, reflecting a global cost-of-living crisis sparked by the war in Ukraine and
continuing covid-19 restrictions in China.
• New York tops the rankings for the first time, tying with frequent leader Singapore, which is
back in pole position for the eighth time in ten years. Together the two have bumped Tel Aviv (Israel;
top last year) down into third place. Damascus (Syria) and Tripoli (Libya) remain the cheapest of the
172 cities covered by our survey.
• Istanbul (Turkey), Buenos Aires (Argentina) and Tehran (Iran) have seen very high inflation.
However, the highest inflation rate is in Caracas in Venezuela, where WCOL prices have risen by
132% since last year. Although Venezuela’s hyperinflation has slowed sharply since 2019, we continue
to exclude the city from our global averages to avoid skewing the calculations.
• The Russian cities of Moscow and St Petersburg have shot up the rankings by 88 and 70 places
respectively as Western sanctions lead to higher prices, and buoyant energy markets and financial
restrictions support the rouble.
• The most rapid increases in the WCOL index were for the price of a litre of petrol, which has
risen by 22% year on year on average in local-currency terms amid higher global oil prices and a
stronger US dollar.
• Prices for gas and electricity have risen by 29% on average in local-currency terms in western
European cities as the region tries to wean itself off Russian energy. This compares with a global
average increase of 11%.
• Inflation for food and household goods has also been high amid trade restrictions, caused
partly by the war in Ukraine. By contrast, prices for recreational goods and services have been
subdued in local-currency terms; this may reflect softer demand as consumers focus spending
on essentials.
1 © The Economist Intelligence Unit Limited 2022

Top ten positions

City Geography Index (New York=100) Rank
Singapore Singapore 100 1
New York US 100 1
Tel Aviv Israel 99 3
Hong Kong Hong Kong 98 4
Los Angeles US 98 4
Zurich Switzerland 94 6
Geneva Switzerland 91 7
San Francisco US 85 8
Paris France 84 9
Copenhagen Denmark 83 10
Sydney Australia 83 10
Source: EIU.
Many countries across the world are struggling with a cost-of-living crisis, the impact of which
is clear in the latest WCOL survey. The survey, which was conducted between August 16th and
September 16th 2022, tracks the prices of over 200 goods and services in 172 cities worldwide (Kiev in
Ukraine had to be excluded entirely from this year’s survey owing to the country’s war with Russia). On
average, WCOL prices have risen by 8.1% year on year in local-currency terms in the latest survey.
This is the highest inflation rate recorded since digital WCOL surveys began almost 20 years
ago. Petrol prices have seen the most rapid increases, but utility and food prices have also increased
sharply.
However, high inflation is not the only factor that drives the WCOL’s annual ranking of the world’s
most expensive cities. A stronger currency will tend to see a city rise in the rankings, as prices are higher
when expressed in international common currency. Structural factors such as competition or high
demand play a key role in determining the cost of living as well. Because we convert local currency
prices into US dollars to calculate each city’s index, our rankings are also driven by exchange rates
against the dollar. This year has seen the dollar strengthen against many currencies as the Federal
Reserve (Fed, the US central bank) raises interest rates.
The combination of these two factors—high incomes and a stronger exchange rate—has propelled
Singapore and New York City to the top of our WCOL rankings for 2022, making them the most
expensive cities in the world. A stronger currency and a higher inflation rate have enabled these two
cities to push Tel Aviv (Israel), which was top in the rankings last year, into third place.
New York is not the only US city that has risen in our rankings as a result of the strengthening dollar.
Other US cities, including Atlanta and Boston, account for six of the top ten global movers up the
rankings. Mexico City has also jumped upwards by 33 places, with the peso supported by Mexico’s own
interest-rate hikes, which are tracking ahead of the Fed’s.

Biggest movers up the rankings in the past 12 months

City Geography Index (New York=100) Rank Index move Rank move
Moscow Russia 72 37 16 88
St Petersburg Russia 66 73 16 70
Atlanta US 70 46 3 42
Charlotte US 69 53 3 39
Indianapolis US 69 53 2 35
San Diego US 79 17 2 33
Mexico City Mexico 71 43 2 33
Saipan Northern Mariana Islands 70 46 1 30
Portland US 70 46 1 30
Boston US 78 21 1 29
Source: EIU.
The biggest upward movers, however, are the Russian cities of Moscow and St Petersburg, which
have shot up the rankings by 88 and 70 places respectively. Capital controls, import suppression and
the conversion of European gas payments into roubles are supporting the value of the local currency.
Meanwhile, local prices have been driven upwards by Western sanctions imposed after Russia invaded
Ukraine in February 2022. According to our survey of prices, inflation in Moscow is now 17.1% year on
year in local-currency terms, while in St Petersburg it has reached 19.4%.
Bottom ten positions

City Geography Index (New York=100) Rank
Colombo Sri Lanka 38 161
Bangalore India 38 161
Algiers Algeria 38 161
Chennai India 37 164
Ahmedabad India 35 165
Almaty Kazakhstan 34 166
Karachi Pakistan 32 167
Tashkent Uzbekistan 31 168
Tunis Tunisia 30 169
Tehran Iran 23 170
Tripoli Libya 22 171
Damascus Syria 11 172
Source: EIU.
The cheapest cities in our rankings are Damascus, Tripoli and Tehran, reflecting these
countries’ weak economies and currencies. Damascus and Tripoli, which are often at the bottom of
the WCOL rankings, have seen only moderate local-currency inflation over the past year. In calculating
Tehran’s index this year we decided to use the more widely used realistic parallel-market exchange

rate, instead of the overvalued official exchange rate. As a result, Tehran is now the third-cheapest city
in our comparative ranking, while it ranked much higher last year.
Biggest movers down the rankings in the past 12 months

City Geography Index (New York=100) Rank Index move Rank move
Stockholm Sweden 61 99 -12 -38
Luxembourg Luxembourg 60 104 -11 -38
Lyon France 63 90 -12 -34
Osaka Japan 71 43 -23 -33
Manchester UK 66 73 -12 -32
Nouméa New Caledonia 68 64 -12 -31
Brussels Belgium 68 64 -11 -28
Douala Cameroon 52 128 -11 -27
Busan South Korea 59 106 -9 -25
Tokyo Japan 72 37 -19 -24
Note. Tehran is not included, as we switched to using the parallel-market exchange rate, which is more widely used than the official
exchange rate.
Source: EIU.
Of the top ten biggest fallers in our rankings, European cities such as Luxembourg and Stockholm
account for five. While inflation in Europe has risen, the energy crisis that has followed Russia’s invasion
of Ukraine is tipping the continent into recession and depreciating currencies against the US dollar and
therefore reducing the indices for some European cities. In late August the euro fell below parity with
the dollar for the first time in 20 years. Japan and South Korea have also seen currency depreciation,
while local-currency inflation in these countries is fairly subdued; this has pushed down the indices for
Tokyo and Seoul compared with New York.
Inflation is widely spread but variable

The cost-of-living crisis is affecting most of the world, with several cities in this year’s WCOL survey
suffering from very high inflation. In Istanbul, prices have risen by 86% in local-currency terms since
last year, while they are up by 64% in Buenos Aires and 57% in Tehran. The highest inflation rate is in
Caracas, Venezuela, where prices have risen by 132% in local-currency terms since last year. While this
is a vast improvement on 2019’s hyperinflation of 25,504%, we continue to exclude Venezuela from our
global averages to avoid skewing the calculations.
The product most affected is petrol, prices of which have risen by 22% on average in local-
currency terms. With oil priced in US dollars, part of this inflation has come from currency weakness:
the average year-on-year price rise in dollars is a comparatively modest 11%. This dramatic rise in local
petrol prices has caused public protests in several cities across the world this year, from Sri Lanka to
Spain.
The variance in petrol price increases is huge in this year’s survey, depending on the strength of each
city’s currency and the extent of government subsidies. In Istanbul and Colombo (Sri Lanka), where
currency crashes have made imported oil very expensive, petrol prices have soared by an eye-watering

148% and 189% respectively in local-currency terms. In the cities of Brazil, which produces its own oil,
petrol prices have actually fallen since last year. The former government used its control of the state oil
company, Petrobras, to hold down prices as well as hiking fuel subsidies this year—yet it was still ousted
by voters in October’s presidential election.
Other prices in our survey have also risen sharply compared with last year. The high prices of energy
commodities mean that utility bills for electricity and gas are up by an average of 11% in local-currency
terms across the 172 cities in the WCOL survey. In western Europe, prices have soared by 29% on
average amid an energy crisis sparked by efforts to wean the region off Russian oil and gas. Global car
prices have risen by 9.5% on average in local-currency terms, as supply-chain blockages have curtailed
production and led to waiting lists in some cities. Meanwhile, prices for food and household goods have
increased more rapidly than prices for clothing and personal care products. By contrast, price rises for
domestic help and recreational goods and services have been subdued.
Price increases are set to ease in 2023

The good news is that prices may be starting to ease in some countries as interest rates bite and the
global economy slows. Supply-chain blockages should also start to ease as freight rates come down
and demand softens. Unless the war in Ukraine escalates, we predict that commodity prices for
energy, food and for supplies such as metals are likely to fall sharply in 2023 compared with 2022 levels,
although they are likely to stay higher than previous levels. Overall, EIU forecasts that global consumer
price inflation will fall from an average of 9.4% this year to a still-high 6.5% in 2023. We expect this
partial drop to be reflected in next year’s WCOL survey, bringing a little relief to hard-pressed
households.

utility bills, private schools, domestic help and

Methodology
recreational costs. Items are updated or revised
periodically to reflect shifts in purchasing habits.
The Worldwide Cost of Living is a twice-yearly
For example, in the latest survey we have revised
survey conducted by EIU that compares more
indicators such as those for mobile-phone services,
than 400 individual prices across more than 200
and for taxis and other ride-hire services.
products and services in 172 cities (173 last year,
To gather the price data, our researchers
when Kiev was included). Data for the survey,
survey a range of stores, including supermarkets,
which has been carried out for more than 30 years,
mid-priced stores and higher-priced speciality
are collected each March and September by our
outlets, as well as an array of service providers. The
global team of researchers. They are then compiled
reported prices are not the recommended retail
into an index by our team of economists for
prices or manufacturers’ costs, but the actual costs
publication in June and December.
charged.
The survey has been designed to enable human
Our economists then convert the price data
resources and finance managers to calculate
into a central currency (the US dollar), using the
cost-of-living allowances and build compensation
prevailing exchange rate and weighting to achieve
packages for expatriates and business travellers.
comparative indices. The index uses an identical
It can also be used by consumer goods firms and
set of weights that is internationally based.
other companies to map pricing trends, determine
Items are individually weighted across a range of
optimum prices for their products across cities
categories, and a comparative index is produced
and understand the relative expense of a city to
using the relative difference by weighted item. For
formulate policy guidelines.
the purposes of this report, all cities are compared
To collect the data, each researcher has a list
with a base city, New York City, which has an index
of more than 200 specified products and services
score of 100.
to research, with more than 50,000 individual
The survey can be accessed via the data tool or
prices collected every six months. These include
our purpose-built website; these allow for city-to-
prices for food, drink, clothing, household supplies
city comparisons.
and personal care items, home rents, transport,

WORLDWIDE COST OF LIVING
EXPLORE OUR COST-OF-LIVING SOLUTIONS
EIU Store
Full rankings and deeper analysis
Purchase the full Worldwide Cost of Living ranking from the EIU Store and access pricing information
on more than 200 products and services in 173 cities worldwide. The ranking draws upon a
comprehensive underlying data set including more than 400 individual prices per location.
What’s included?
• Ranking of 173 cities around the world based on their relative cost of living.
• Over 400 individual prices per location across 200 products and services.
• Current and past trends impacting the cost of living, including currency swings, local inflation and
commodity shocks.
• Regional analysis comparing key trends emerging in the Americas, Africa, Asia, Europe and the
Middle East.
You can purchase this year’s report at the EIU Store.
City-to-city data
Assessing living costs around the world
Updated biannually, our data service allows you to make customised city-to-city comparisons of the
cost of living across 173 cities globally.
What’s included?
• Comprehensive dataset including over 400 individual price points across 200 goods and services
per location.
• Comparative cost of living indices between a base and host city.

• Custom research and add-on features to reflect your individual needs.
• Intuitive city search for easily discoverable city-to-city comparisons.
• Online salary calculator to build cost-of-living allowances into compensation packages.
Find out more information about our data service by visiting: eiu.com/worldwide-cost-of-living.

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© 2022 The Economist Intelligence Unit Limited. All

rights reserved. Neither this publication nor any part
of it may be reproduced, stored in a retrieval system, or
transmitted in any form or by any means, electronic,
mechanical, photocopying, recording or otherwise,
without the prior permission of The Economist
Intelligence Unit Limited.
While every effort has been taken to verify the

accuracy of this information, The Economist
Intelligence Unit Ltd. cannot accept any
responsibility or liability for reliance by any person
on this report or any of the information, opinions
or conclusions set out in this report.
Risk outlook 2023
Ten risk scenarios that could reshape
the global economy
Formed in 1946 with more than 70 years of experience, it is ideally positioned to be a commentator, interpreter and forecaster

about emerging issues around the world.
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• Risk analysis—our risk services identify actual and potential threats around the world and help our clients understand the
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India Tel: +971 4 4463 147
RISK OUTLOOK 2023
TEN RISK SCENARIOS THAT COULD RESHAPE THE GLOBAL ECONOMY
Risk Outlook 2023

Ten risk scenarios that could reshape the global economy
E IU produces a quantitative and qualitative assessment of economic, political and regulatory risks
that help our clients evaluate potential shifts in a country’s operating environment. In 2022 the
global repercussions of Russia’s invasion of Ukraine shifted global concerns away from coronavirus-
related health issues and towards growing political, security and macroeconomic risks. We expect that
ripple effects from the war in Ukraine, global monetary tightening and an economic slowdown in China
will weigh on the economy in 2023, with global growth slowing to only 1.6%. This white paper explores
some of the risks that could lead to even slower growth, or even, trigger a global recession.
Global risk scenarios

Political Military Economic Environmental
Deteriorating ties Cold winter worsens War in Ukraine turns

between China and Europe's energy crisis into global conflict
the EU/US
China's zero-covid policy
Monetary tightening
leads to global Cyberwar
recession erupts
Guxxxxxxxx
Conflict erupts between
New, highly aggressive China and Taiwan
variant of covid-19
emerges
High inflation fuels Extreme weather and war

social unrest in Ukraine prompt famine
Source: EIU.
Scenario one: cold winter exacerbates Europe’s energy crisis

High probability; Very high impact
Russia has weaponised its energy supplies by completely or partially cutting off gas flows to 12 EU
countries. If a cold winter in 2022/23 leads to above-average gas demand, Europe could exhaust its
natural gas reserves early (and fail to replenish them), resulting in a recession that could drag into
2024 (our core forecast is for a mild recession, with the euro zone’s GDP contracting by 0.4% next
year). Major parts of the industrial sector would be forced to ration energy usage and reduce their
workforces, ultimately bringing supply chains to a halt. High energy prices would lead to a surge in
bankruptcies as firms become unprofitable. In an extreme scenario, governments could forcefully

RISK OUTLOOK 2023
ration energy usage, leading to waves of blackouts. Governments could also halt price protections
for households, increasing heating costs further and thus fuelling poverty and eroding consumers’
purchasing power. A breakdown of EU solidarity is another risk, with member states possibly halting
or reducing gas flows to their neighbours to prevent domestic shortages. Given their high level of
dependency on Russian gas, central Europe, Germany and Austria would be the most exposed to a
deep recession in such a scenario.
Scenario two: extreme weather adds to commodity price spikes, fuelling global
food insecurity
High probability; High impact
Climate change models point to an increased frequency of extreme weather events. So far these have
been sporadic and in different parts of the world, but they could start to happen more synchronously
and for prolonged periods. Severe droughts and heatwaves in Europe, China, India and the US in 2022
are contributing to rising prices of some foodstuffs. In addition, the war between Russia and Ukraine
(two of the world’s largest agricultural exporters) has led to severe price spikes and risks creating
global shortages of grains and fertilisers (which are crucial for harvests) in 2023. The world could face a
prolonged period of crop shortages and skyrocketing prices, raising the risk of food insecurity (or even
famine).
Over half a billion people live in countries that rely heavily on Russian and Ukrainian wheat
(% of total wheat imports from Russia and Ukraine, 2021)
Georgia
Azerbaijan
Turkey
Mongolia
Albania
Lebanon Armenia
Cabo Verde Egypt
Nicaragua
Qatar
Benin
71-100%
41-70%
11-40% Congo
(Brazzaville)
0-10%
N/A
Top ten wheat
producers
Source: EIU. * Data exclude Kazakhstan, which is a net wheat exporter.
Scenario three: direct conflict erupts between China and Taiwan, forcing US to
intervene
Moderate probability; Very high impact
A direct conflict between China and Taiwan is unlikely, but tensions grew when China conducted
“targeted military operations” following a visit to Taiwan by the speaker of the House of Representative
RISK OUTLOOK 2023
(the lower house of the US Congress), Nancy Pelosi, in August. China’s countermeasures have included
live-fire military exercises in and around Taiwan’s territorial waters. The US government has reiterated
that its diplomatic approach towards Taiwan has not changed, but China is increasingly sceptical of
US-Taiwan relations, particularly given the acute hostility towards China in the US Congress. The risk of
a full military invasion is mitigated by China’s reliance on Taiwan’s semiconductors and concerns about
the US’s active response to Russia’s invasion of Ukraine. However, recent military exercises by China
and a more aggressive Taiwanese response raise the risk of a miscalculation, which could spiral into a
wider conflict. Such a conflict would wipe out Taiwan’s economy, including its semiconductor industry,
on which global supply chains rely. It would also risk drawing in the US, Australia and Japan, starting a
catastrophic global conflict.
Scenario four: high global inflation fuels social unrest

Very high probability; Moderate impact
Persistent inflationary pressures, caused by supply-chain disruptions and Russia’s invasion of Ukraine,
are pushing up global inflation, which is at its highest level since the 1990s. If inflation rises much higher
than wage increases, making it hard for poorer households to purchase basic staples, it could spark
social unrest. Such protest movements have arisen in India, Ecuador and Argentina. In an extreme
scenario, protests could push workers in major economies and employed by large manufacturers to co-
ordinate large-scale strikes demanding higher salaries that match inflation. Such movements, similar to
those that have affected critical services in the UK (ports, postal services, barristers and railways), could
paralyse entire industries and spill over to other sectors or countries, weighing on global growth.
Scenario five: new variant of coronavirus, or another infectious disease, sends

global economy back into recession
Amid global vaccine inequity, the relaxation of government policies and pandemic fatigue, we
expect a new variant of covid-19 to emerge in late 2022 or early 2023. If it escapes immunity
(despite a reformulation of vaccines), this could cause a repeat of 2020. Risks are not only related
to the coronavirus—experts are warning that other infectious diseases will soon emerge (such as
monkeypox). If another aggressive variant of the coronavirus materialises, developed countries may
impose lockdowns. Consumer and investor sentiment would sink, leading to a downturn in financial
markets, services and retail sales. Travel bans would return, dampening the tourism recovery. The
vaccination drive would reset if vaccine producers have to start from scratch, and the global economy
would go back into recession.
Scenario six: inter-state cyberwar cripples state infrastructure in major

economies
Russia’s invasion of Ukraine and tensions surrounding Taiwan have increased the likelihood of major
state-on-state cyber-attacks. Given the much higher costs of direct military conflict and the difficulty in
identifying perpetrators of cyber-attacks, any military escalation is most likely initially to take the form
of cyber-warfare. This could be triggered by a complete diplomatic breakdown, leading to an escalating
RISK OUTLOOK 2023
string of tit-for-tat cyber-attacks ultimately targeting software that controls state infrastructure. The
shutdown of a national grid, for example, would severely disrupt business operations.
Two-thirds of the world's population live in countries that are neutral or Russia-leaning regarding
the war in Ukraine
West-leaning Singapore
Neutral
Russia-leaning
By global GDP (%) By global population (%)

70 35
60 30
61.2 32.1
50 25
27.6
40 20
30 20.3 15
20 16.1 10
16.8
9.3 10.1 10 3.9 5
2.6
0 0
Condemns West- Neutral Russia- Supportive Condemns West- Neutral Russia- Supportive
Russia leaning leaning of Russia Russia leaning leaning of Russia
Source: EIU.
Scenario seven: further deterioration in West-China ties forces full decoupling

of global economy
Moderate probability; High impact
Western democracies, notably the US and the EU, are concerned about China’s support to Russia
following the invasion of Ukraine. In parallel, China is concerned about US-Taiwan relations and
efforts by the US to convince other democracies to pressure it using restrictions on trade, technology
and finance. The EU has also taken an increasingly confrontational stance towards China’s human
rights abuses in Xinjiang, unequal treatment of EU and Chinese firms, and its subsidy-led industrial
model. In an extreme scenario, China could initiate military manoeuvres in the South China Sea (most
likely in Taiwan), exacerbating tensions and pushing the West to unite in imposing sweeping trade
and investment restrictions on China. This would force some markets (and companies) to choose

RISK OUTLOOK 2023
sides. In retaliation, China could block exports of raw materials and goods that are crucial to Western
economies, such as rare earths. This would have disastrous economic effects and force companies to
operate two supply chains while fearing operational disruptions.
Scenario eight: aggressive monetary tightening leads to global recession

Moderate probability; Moderate impact
Major central banks are rapidly raising interest rates to try to tame rising inflation across most countries
around the world (we assume that global inflation will stand at nearly 10% this year). These measures
are fuelling a sharp increase in long-term interest rates, raising borrowing costs. A prolonged rise in
inflation could prompt central banks to maintain aggressive policies that would undermine household
purchasing power amid high energy and commodities prices. Amid other destabilising factors (for
example the war in Ukraine, supply-chain disruptions, the strength of the US dollar and China’s zero-
covid policy), this situation could trigger a global recession. In developed countries, the economic
slowdown could deepen, resulting in an asset market crash that would weigh on global growth. In
emerging markets, interest-rate rises could prompt extreme currency depreciations and raise the risk
of sovereign debt defaults (as happened in Sri Lanka in April).
Major central banks are rapidly raising interest rates

(main policy interest rate*; % end of period)
US UK EU Japan
6
-1
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2021 22 23 24 25
Source: EIU. *Data from Q4 2022 are EIU forecasts.
Scenario nine: China’s zero-covid policy leads to severe recession

Low probability; High impact
China’s government continues to believe covid-19 containment measures to be necessary. We
therefore expect China’s zero-covid policy to persist until mid-2023. With another coronavirus variant
likely to emerge this winter, strict lockdown measures in China remain probable. These, combined
with the persistent weakness in China’s property sector, energy sector woes and a recent drought,
could cause China’s economy to contract severely. This would weigh on global economic activity,
deteriorating already weak investor sentiment and dampening the performance of global financial
markets. International companies could diversify their operations to non-China-based manufacturing

RISK OUTLOOK 2023
and logistics hubs that have pivoted towards “living with the virus”. However, this would be costly
and would need to be carefully framed; Chinese authorities could retaliate, including via enhanced
inspections of, or reputational attacks on, those firms that would be considered as “quitting the
Chinese market”.
Scenario ten: Russia-Ukraine conflict turns into global war

Very low probability; Very high impact
The war in Ukraine could become a global conflict, pitting Russia against NATO members. The war
carries particular risks for NATO member states that border Ukraine and Russia, which could be
drawn into the conflict inadvertently. Russia has readied its nuclear deterrence forces and could
target critical infrastructure (such as gas pipelines or undersea telecommunications cables). In case of
retaliation from NATO countries, the risk of a miscalculation cannot be discounted. Prospective and
existing NATO member states such as Poland, Romania, the Baltic states, Finland and Sweden are
the most likely trigger points. Moldova is another potential flashpoint. The consequences of a global
conflict would be devastating. The global economy would fall into deep recession, with severe human
consequences and large-scale fatalities. Such a confrontation could assume a nuclear form, with
catastrophic consequences for major cities in Russia, the US and Europe.

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Africa outlook 2023:
the challenges ahead
Resilience amid disruption

We specialise in:
Contact us

GURGAON DUBAI

India Tel: +971 4 4463 147
AFRICA OUTLOOK 2023: THE CHALLENGES AHEAD
RESILIENCE AMID DISRUPTION
Africa outlook 2023: the challenges ahead
• African economies will face turbulent times in 2023 as a range of internal and external
shocks undermine the region’s growth prospects and threaten stability, but most of the
region will weather the storm and continue to grow.
• Resource-intensive economies and major commodity exporters will face challenging market
conditions amid a global economic slowdown, but the outlook is far from gloomy as export
prices remain reasonably high and competition remains intense for Africa’s resources.
• Domestic price pressures will remain elevated—although inflation will ease back from the
highs of 2022—and monetary policy will tighten across much of Africa, while the cost of
international capital will rise substantially for some economies.
• Major concerns surround the heavy burden of debt servicing, instability created by election
cycles, geopolitics and war, as well as the lingering threat of food insecurity caused by
conflict and adverse weather conditions.
Africa’s economic recovery has been disrupted in 2022 by a range of internal and external shocks—
including adverse weather conditions, rapidly rising rates of inflation, higher borrowing costs and
softer demand in major export markets. Some of these factors will subdue growth prospects in the
year ahead, but the region overall is expected to hold steady rather than suffer a major downturn in
economic growth—both North Africa and Sub-Saharan Africa are forecast to grow by 3.2% in 2023.
We expect almost all countries in Africa to continue to grow, although real GDP growth rates will vary
considerably across the region and some states will stagnate and teeter on the brink of recession.
African economic growth

(real GDP; % change, year on year)
North Africa Sub-Saharan Africa

6
-2
-4
2012 13 14 15 16 17 18 19 20 21 22 23
Source: EIU.

Heavyweights remain stuck in slow-growth mode

Crucially, regional heavyweights will remain stuck in slow-growth mode, amid more challenging
domestic and external economic conditions. South Africa will grow by just 1.5% in 2023 as higher
interest rates, power supply issues and weak demand weigh on domestic and export-oriented business
activity. The country could easily enter a technical recession—two consecutive quarters of negative
real GDP growth—in 2023. Similar conditions will hamper growth in Nigeria, although the economy will
benefit from resilient commodities trade and dynamic consumer goods and services markets in major
cities, pushing growth to 3.1% in 2023. Egypt will post growth of just under 3%, which will be less than
half of that recorded in 2022, with the economy propped up as interest rates rise by a positive external
contribution as real exports are supported by devaluation of the pound and liquefied natural gas (LNG)
sales to energy-strapped Europe. Kenya is recovering from the uncertainties of national elections held
in August 2022 and will be the fastest-growing major economy in Africa during 2023, posting real GDP
growth in the region of 5%.
African economic growth, 2023

(real GDP; % change, year on year)
4 2
2
16 3
4
4 3
7 6 1 4
6 3
4 5 3 5
6
4 4 4
7 4
2 4 1
6 5 3
2 2 6
7 5
4 3
7
5
4
5
4
6+ 2 3
4
5 5
4 2
4
3 4 6
3
2
1
1
4
0 2
Source: EIU.

Be aware of major downside risk factors

Risks to the region’s outlook are firmly weighed to the downside and the outcome for growth and
stability across Africa could be much worse than what we currently expect in 2023. Heightened
geopolitical tensions, the lingering effects of the covid-19 pandemic, ongoing supply-chain disruption,
business and consumer price pressures, the rising cost of international and domestic finance, disruptive
national elections, social grievances and adverse weather events are all present and will create an
unsettled backdrop for the continent throughout 2023. Risk-mitigation strategies to deal with higher
operating and investment costs, further supply-chain disruption and much softer demand among end-
clients will probably feature prominently in the business plans for those investing in and dealing with
African counterparts in 2023.
African countries are confronted with risks that could disrupt their economies
Risk intensity
Scenario Probability Impact (probability x
impact)
Extreme weather events: Occurrence of extensive and prolonged
droughts and flooding in fragile areas - especially across the Sahel and
High Very high 20
Horn of Africa - exacerbating issues of insecurity, people displacement and
regional conflict.
Regional conflict zones: Regional conflict hotspots (including Mali, Burkina

Faso, Ethiopia, eastern DRC and northern Mozambique) experience more
High Very high 20
intense fighting that disrupts local economies and draws in more players -
African Union peacekeepers, Western allies, mercenaries (Russia).
Financial pressures create debt defaults: Global monetary tightening

pushes larger African economies beyond the brink and into default,
High Very high 20
with most countries not yet engaged in a common framework for debt
restructuring.
Disputed national elections: National elections - especially in DRC, Libya,

Mali, Nigeria and Zimbabwe - prove highly volatile and disputed results High Very high 20
prompt mass protests and social instability.
US-China tensions: Tension between the US and China ramps up,

prompted by the war in Ukraine or security concerns in Taiwan, which Moderate high 15
creates pressure for African states to take sides.
New coronavirus variants: New variants of the coronavirus spread across

Africa and in key trade partners, which disrupt local economies and global Moderate Moderate 9
supply chains.
Escalation of war in Europe: Conflict between Russia and Ukraine triggers

open conflict between Russia and NATO members, further destabilising Very low Very high 5
Europe, global supply chains and commodity markets.
Intensity colour key: 1 to 4 5 to 8 9 to 12 13 to 16 17 to 25

Note. Intensity is a product of the probability and impact ratings, where “very low” scores 1 and “very high” scores 5.
Source: EIU.

Exporters will face challenging market conditions

African exporters will face a more challenging external business environment in 2023, although the
outlook is far from gloomy. Major export operations are highly exposed to the fortunes of the EU, the
US and China and some businesses will face much softer demand in these markets in the year ahead.
We expect the EU (and the UK) to slip into recession in 2023, and US economic growth will slow sharply
as high inflation and monetary policy tightening take their toll on household spending and business
investment. The performance of the Chinese economy will be subdued by its own internal pressures,
which include lingering effects of the pandemic and trouble in the real estate sector.
Direction of trade for African countries' exports, 2021

(% of total recorded goods exports)
EU US China Africa Other/unknown

100
80
60
40
20
0
Namibia
Zambia
Algeria
Angola
Cameroon
DRC
Congo (Brazzaville)
Côte d’Ivoire
Egypt
Ethiopia
Gabon
Ghana
Kenya
Libya
Madagascar
Malawi
Mauritius
Morocco
Mozambique
Niger
Nigeria
Senegal
Sierra Leone
South Africa
Tanzania
Tunisia
Uganda
Zimbabwe
Source: EIU.
However, there are mitigating factors that should help Africa to avoid a major dip in export
performance in 2023. Commodity prices—especially for energy products, metals and minerals—will
remain volatile and most likely ease back in 2023. Nevertheless, they will remain relatively high by
historical standards after having experienced two years of solid gains in 2021 and 2022 and major
commodity exporters will continue to benefit from a terms of trade boost to their external balances
in the short term. In addition, international competition will remain intense to secure long-term
access to Africa’s strategically important energy products and industrial inputs, which together with
international sanctions on Russian entities—causing investors and buyers to look elsewhere—should
help to prevent a contraction in demand for African commodity exports in 2023.
In the energy sector, the decision by European countries to replace Russian oil and gas with
alternative supplies will provide a short- to medium-term boost to demand for African energy suppliers
and a potential source of new investment for future projects in countries such as Nigeria, Angola,
Gabon, Libya, Algeria, Egypt, Congo-Brazzaville, Ghana, Equatorial Guinea and Chad. Similarly, African

mining ventures—especially those in Botswana, the Democratic Republic of Congo (DRC), Namibia,
Nigeria, Sierra Leone, South Africa, Tanzania, Zambia and Zimbabwe—could receive more attention
should Western-based mining companies and commodity traders increasingly shun Russian supplies
of copper, cobalt, diamonds, gold, iron ore, manganese, nickel, platinum, palladium, tungsten, uranium,
vanadium and zinc, among other products.
Less resource-intensive and more diversified trading economies will continue to be among the
region’s fastest-growing economies—including Kenya, Côte d’Ivoire and Mauritius. Export-oriented
manufacturing operations will face more difficult and uncertain times in 2023—characterised by higher
costs and weaker demand—but even here the erosion of business activity will be contained by the
hard work over the past decade to improve global and regional value-chain integration, to build strong
relations with international partners and to enhance international competitiveness.
Exchange rates will remain under pressure

Most African currencies have lost substantial value against the US dollar during 2022 and we expect
exchange-rate weakness to continue into 2023, albeit to a lesser degree. The currencies of the troubled
states of Sudan and Zimbabwe will be among the weakest in the world during 2023, while Ghana,
Malawi, Sierra Leone, Ethiopia and Egypt—which will all suffer from elevated rates of inflation—will see
their currencies depreciate by more than 10% against the US dollar. African majors of Nigeria, South
Africa, Angola, Algeria and Kenya will not be exempt from currency weakness and will experience
further depreciation of their currencies against the US dollar in 2023, largely due to tighter global
financial markets, weaker external demand and price pressures at home.
African exchange-rate adjustment in 2023

(annual average % change; LCU:US$)
LCU depreciation v US dollar LCU appreciation v US dollar

10
-10
-20
-30
-40
-50
Zambia
Mali
Sudan
Zimbabwe
Ghana
Malawi
Sierra Leone
Ethiopia
Egypt
Madagascar
Tunisia
Nigeria
Botswana
Kenya
Uganda
South Africa
Angola
DRC
Algeria
Tanzania
Mozambique
Djibouti
Eritrea
Mauritius
Morocco
Libya
Senegal
Côte d’Ivoire
Chad
CAR
Niger
Gabon
Congo (Brazzaville)
Cameroon
Burkina Faso
Source: EIU.

Tighter monetary policy and lower inflation rates

About two-thirds of African states have increased their domestic policy interest rates in 2022—to
curb inflation and ease pressure on exchange rates—and the majority of Africa will raise domestic
policy rates further in 2023. African governments
will need to tread carefully to protect fragile
confidence among households and businesses African policy interest rate, 2023
and to avoid disrupting short- to medium-term
economic growth prospects. Policymakers faced
by the most pressing need to tighten monetary
policy are likely to be found in Ghana, Ethiopia,
Egypt, South Africa and Zimbabwe. Annual
average consumer price inflation will be in
double digits for about 42% of African states in
2022 and elevated price pressures have become Monetary policy
adjustment
problematic for governments, businesses and
Tighter
households across the continent. Price pressures Looser
will remain high but ease back in 2023 in all Neutral
African states except Zimbabwe, partly as a
result of monetary policy adjustments and softer Source: EIU.
commodity prices.
Debt servicing will become more problematic

African governments have ramped up their borrowing—domestically and internationally—and public-
sector debt ratios (relative to GDP) have pushed back towards the highs last seen in the early 2000s
just before the enormous debt restructuring of 2005, implemented under the umbrella of the heavily
indebted poor countries (HIPC) initiative. On average, the public-sector debt/GDP ratio will remain
above 60% for Africa in 2022 and 2023 and some African countries will far exceed this level. The need to
service and roll over large amounts of debt at a time when domestic and international borrowing costs
are on the rise will weigh heavily on some countries in 2023 and things could get even more painful in
2024 when more capital repayments fall due.
Ghana, Tunisia, Egypt, Congo-Brazzaville, Zambia, Zimbabwe and Mozambique have enormous
amounts of debt (relative to GDP) and their governments will grapple with debt-servicing burdens
that eat up a substantial share of their revenue in 2023. Elsewhere, major economies of Algeria, Angola,
Ethiopia, Gabon, Kenya, Nigeria and South Africa have seemingly manageable levels of public debt
but these countries will suffer from high and rising debt-servicing costs—especially Nigeria where
the debt/GDP ratio is low but debt is hugely expensive to service. Consequently, pressure will mount
to implement economic reforms—including changes to subsidy regimes and tax structures—and cut
back on public-sector spending, although large-scale changes will most likely be put off until upcoming
elections settle and the political path becomes clearer.

African inflation
(annual average; %)
2022 2023
0 10 20 30 40 50
Zimbabwe
Sudan
Ethiopia
Sierra Leone
Ghana
Malawi
Angola
Burkina Faso
Nigeria
Burundi
Guinea
Liberia
São Tomé and Príncipe
Mozambique
Egypt
Zambia
Algeria
Rwanda
Gambia
Madagascar
Tunisia
Mali
Cabo Verde
Congo (Democratic Republic)
Lesotho
Mauritania
Libya
Mauritius
Botswana
Guinea-Bissau
Kenya
Central African Republic
Eritrea
Namibia
Eswatini
Côte d’Ivoire
Uganda
South Africa
Senegal
Togo
Cameroon
Gabon
Tanzania
Niger
Djibouti
Chad
Equatorial Guinea
Congo (Brazzaville)
Comoros
Morocco
Seychelles
Benin
Source: EIU.

African public-sector debt African public debt, 2023

(% of GDP) (% of GDP)
120
100
80
60
90
40
75
20 60
45
0
30
2000
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
No data
Source: EIU. Source: EIU.
In the meantime, more African states will head towards external debt distress in 2023 and 2024—
African states are required to repay about US$75bn of external borrowing (medium- and long-term
capital repayments that fall due) in 2023 and a similar amount in 2024. Foreign creditors have offered
pandemic-related debt relief and relatively low—by historical standards—interest rates in recent years,
but these lines of international financial support have come to an end. The debt-servicing burden will
become more painful because of higher interest rates, weaker currencies against the US dollar and
softer capital inflows, while rolling over existing debt or accruing new debt will become much more of a
challenge. Already, many African states have found it difficult to issue new Eurobonds in 2022 and yields
in secondary markets—which indicate where future refinancing costs are headed—have risen sharply.
A widespread external debt crisis across the continent seems unlikely, but some highly leveraged states
will face acute financing difficulties and a very uncertain period.
Elections will pose a risk to stability

Africa will hold head of state (presidential or prime ministerial) or national legislature elections in 17
states during 2023 and preparations will ramp up for national elections in a further 13 states in 2024.
Election time can be very unstable in Africa and the 2023-24 cycle will be no different with a high risk of
political protests, mass demonstrations and strikes in a range of countries. Social unrest could easily be
stoked by disinformation campaigns and disgruntled losers, as well as public discontent with political
institutions, ruling elites and poor public services. Worsening socioeconomic conditions in some
countries driven by subdued wage growth, the rising cost of living and food security concerns could
prove problematic for incumbent or new government administrations. Upcoming elections in Algeria,
Egypt, Ethiopia, the DRC, Libya, Madagascar, Nigeria, South Africa and Zimbabwe could prove to be
flashpoints for disruptive civil unrest in 2023.

African election cycle
Morocco Tunisia
Algeria
Libya Egypt
Cabo Verde Mauritania
Senegal Mali
Niger Sudan Eritrea
The Gambia Chad
Guinea- Burkina Faso
Guinea Djibouti
Bissau
Sierra Leone Nigeria Ethiopia
Central South
Liberia African Sudan
Cameroon Somalia
Côte d’Ivoire Republic
Ghana Uganda
Rwanda Kenya
Togo Gabon
Benin DRC
São Tomé & Príncipe Seychelles
Burundi Tanzania
Equatorial Guinea
Congo (Brazzaville) Comoros
Angola Malawi
Zambia
Madagascar
Zimbabwe
Namibia
Botswana Mozambique
Election for head of state and/or
national legislature in ... Eswatini
Mauritius
2023 2024 South Lesotho
Africa
Source: EIU.
Intense geopolitics will roll into the new year

The EU, the US and China have doubled down on their efforts to build economic, political and security
relations in Africa in recent years, and competition between these three major global powers will
intensify in the year ahead. The EU retains pole position among international investors in Africa—as
measured by the stock of foreign direct investment—and is the region’s leading trade partner. Leaders
from the EU and the African Union (AU) met at the sixth EU–AU Summit held in Brussels in February
and agreed on the principles of a new partnership and joint vision for 2030. In addition, the Summit
saw the EU agree to boost the supply of covid-19 vaccines and direct about €150bn of its Global
Gateway investment funds to Africa. The US has a new Africa Strategy, which it hopes will revitalise
ties with the continent following a nose-dive in relations during the presidency of Donald Trump, while
the administration of Joe Biden is planning to hold a US-Africa Leaders’ Summit in Washington in
December 2022—the first since 2014 and the second such meeting ever.
Africa will play an important role in China’s outreach through its ambitious Belt and Road Initiative
and its Dual Circulation model of development, which seek to secure production bases and strategic
supply chains in Africa, as well as open end-markets for Chinese goods and services on the continent.
The era of Chinese state-backed big loans and mega-projects may be coming to an end, but a
concerted effort to drive Chinese private-sector interests into Africa is under way. The projection of
soft power will feature heavily in Chinese engagement with the continent, which includes continued
covid-19 vaccine diplomacy, support for regional integration and branching into peace and security
initiatives.
Russia has made a concerted push to secure political support across Africa in recent years, which has
entailed intense diplomacy, financial aid and military support, but its ambitions on the continent are
likely to be hampered by its war in Ukraine during 2023. The difficult economic situation in Russia and
imposition of international sanctions will complicate African trade and investment deals with Moscow,
while military support will wane as forces are redeployed to Europe (including personnel managed
by the Wagner Group, a Russian paramilitary organisation) and losses are incurred there. A second
Russia-Africa Summit is scheduled to take place in late 2022 in Ethiopia, but the uncertain nature of the
war in Ukraine and its political implications could scale down or derail the gathering. Russia has strong
alliances in Africa, which it will maintain—especially in the Central African Republic, Mali, Libya, Algeria,
Egypt, Sudan and Mozambique—but it may find it hard to expand its geopolitical influence or footprint.
Benefits of digitalisation felt more widely

Africa has a track record of rapidly adopting technology and innovation to provide practical solutions
for the challenges facing its governments and industries to improve efficiencies, remove barriers and
explore new products or services. Over the past five years or so, digitalisation projects and broader
digital transformation strategies have been encouraged by improving telecommunications networks,
increased (mobile) internet access, advances in information and communications technology (ICT)
products and services, and strong demand from rapidly growing urban populations. Since 2020 the
pandemic has accelerated African digital innovation in a wide range of sectors and increased demand
for more digital infrastructure and services across the continent. Many governments, and the African
Union, have adopted digital transformation strategies through to 2030 and have already implemented
regulatory changes with the aims— among others—of pursuing universal digital access, encouraging
private-sector investment, opening new markets and driving socioeconomic development.
The push and pull for digital services will continue unabated in 2023 and beyond, which will drive
opportunities in a wide range of sectors. Digitalisation initiatives and strategies are likely to benefit
agricultural supply chains, manufacturing operations, transport and logistics services, formal and
informal retailing, health and education provision, recreation and entertainment, financial services
and government services. In turn, this should help to support thriving ICT sectors and technology
hubs largely based in Nigeria, South Africa, Kenya and Egypt, as well as spur foreign investment into
the African market. In addition, Africa retains a large communications gap—whether this is measured
through mobile network coverage, smartphone use or internet access more broadly—and intense
demand as well as competition to fill that gap, which will spur more infrastructure and service provision
investment in the year ahead.

Drivers of and constraints on business in Africa
Sector Positive drivers Negative drivers

• High prices and strong global demand • High and rising input and operating costs
Energy, metals & • Increased foreign investment interest • Risk to some projects from exposure to
materials
• Long-term development plans Russia
• Sustained domestic demand/regional trade • Pressure from rapidly rising input and
Light manufacturing • Foreign investment interest and global value
chain integration operating costs (fuel, power, etc)
& automotive
• Major policy focus (supportive) • Pressure on labour costs (wages/training)
• Pipeline of projects (energy and transport) • Elevated costs for key inputs and fuel bills
Construction &
• Real estate and utilities development • Potential delay to some projects due to
building materials
• Investing in domestic/regional capacity financing constraints
• Higher farm-gate prices and strong demand • Higher input costs (fuel/fertilisers)
Agriculture & food
processing (domestic and foreign) squeezing margins and elevated import bills
Retail & fast-moving • Inflation squeeze on household incomes

• Thriving urban markets (pandemic recovery)
consumer goods • Costs of adapting to new delivery models
• Major investment required

Healthcare (pharma) • Public- and private-sector investment plans
(infrastructure/services)
& education • Major policy focus (national/multilateral)
• Long-term funding issues and constraints
• Increasing demand (positive pandemic effects) • Supply chain disruption and delayed
Digital & telecoms • Growing competition and infrastructure deliveries
• Identified as critical success factor
Transport & • Trade facilitation (hard/soft) and cross-border • Much higher operating costs (fuel)
logistics demand
• Policy to boost financial inclusion (fintech etc) • Tighter credit conditions

Financial services • Rising (aspirational) middle class (interest rates/risk aversion)
Major power projects will gain traction

Some major energy projects will make positive steps towards bringing more power generation capacity
on stream in 2023 and in the immediate years that follow, which will open up the prospect of increased
supplies to feed domestic industry and households, as well as facilitate cross-border transfers. The
enormous Grand Ethiopian Renaissance Dam (GERD) and South Africa’s large Redstone concentrated
solar power (CSP) plant—are nearing completion and are part of a large pipeline of hydroelectric, solar
and wind projects that will see renewable installed capacity accelerate from 2023 onwards. In addition,
various natural gas and LNG projects will be commissioned or ramp up production in 2023 to help to
facilitate exports and supply gas-fired power stations.
Construction of the GERD is scheduled for completion in 2023 and power generation will be ramped
up in subsequent years. Two turbines were commissioned in early 2022 with an installed capacity of
750 MW and a third filling of the dam took place in August and September. The GERD’s total installed
power generation capacity will rise to 5,000-5,500 MW once building works are complete and all 13

planned turbines are fully operational—making

Grand Ethiopian Renaissance Dam
the facility the largest hydroelectric power
SAUDI ARABIA
EGYPT plant in Africa. The project is a game changer
Third and final filling in August 2022 and
all construction works to be complete in for power provision in the Horn of Africa but is
2023.
highly contentious given the potential impact
Final installed power generation capacity
of 5.2 GW (two of 13 turbines operational). on downstream water flows along the Blue Nile
Nile
Total water storage capacity of 74bn cu
metres, affecting 60% of water flowing
affecting Egypt and Sudan. Negotiations between
into the Nile. Ethiopia, Egypt and Sudan over the filling of the
SUDAN Major source of tension between Ethiopia,
Egypt and Sudan – negotiations to resume. GERD have stalled since April 2021, but talks are
likely to resume in 2023 mediated by the AU as
DJIBOUTI
Ethiopia pushes ahead regardless.
SOMALIA
ETHIOPIA Climate change and food security will

SOUTH
SUDAN trouble policymakers
Source: EIU. Egypt will host the 2022 UN Climate Change
500 km
Conference (COP27) in November—and the UAE

will host COP28 in late 2023—where African leaders will continue to lobby hard for much more foreign
investment and international financial support from the world’s richest nations to pursue climate
change adaptation projects and help build resilience across sectors, communities and ecosystems.
African governments will push hard on a third front to secure equitable transfers for climate change-
related loss and damage—long a hotly disputed and unresolved area of international climate change
policy. Any immediate and substantive progress in these three areas—more finance for climate change
Early warning hunger hotspots

(October 2022 to January 2023)
Syria
Sahel
(Burkina Faso, Chad, Mali, Mauritania and Niger) Afghanistan
Sudan Pakistan
Haiti
Yemen
Somalia
Central America Ethiopia
(Guatemala and Honduras) Nigeria
Kenya Sri Lanka
Central African Republic
South Sudan
Democratic Republic Madagascar
Hotspots of highest concern of Congo
Malawi
Hotspots of very high concern
Zimbabwe
Hotspots of high concern
Key drivers and aggravating factors
Conflict/insecurity Displacement Dry conditions Economic shocks
Flood Political instability/unrest Tropical cyclone
Sources: UN Food and Agriculture Organisation; UN World Food Programme.

adaptation, resilience building and compensation—is unlikely to materialise in Cairo, or Dubai, while
African states will remain at the vanguard of those countries suffering the effects of weather-related
loss events.
Adverse weather conditions in 2022 and the potential for further disruption in 2023 will negatively
affect domestic food supplies, while high prices for farm inputs (especially fuel and fertilisers) and
imported food products will exacerbate the food security crisis playing out across much of East Africa,
the Sahel and parts of Southern Africa. Water stress and food insecurity will remain a key driver of
localised conflict, social unrest and cross-border migration—especially in Ethiopia, Somalia, and South
Sudan where the risk of famine and hunger will loom large in 2023.
Unresolved conflicts affect regional stability

Conflict on the continent will remain an issue and difficult to resolve given underlying tensions and
drivers, which often spill across borders. Hotspots of insecurity in 2023 will be found across the
impoverished Sahel region—especially in Mali and Burkina Faso, in fragmented and disputed Libya,
throughout the Horn of Africa, in northern Mozambique and in unsettled parts of Nigeria. Of particular
concern is the conflict in northern Ethiopia (Tigray region), which will continue to undermine peace
and stability in the Horn of Africa in 2023. The conflict, which started in November 2020, is stuck in a
tense and tragic deadlock. An ongoing build-up of Ethiopian federal government forces and Eritrean
allies along the Ethiopian border with Eritrea does not bode well for a peace settlement, and the fight
with the Tigray People’s Liberation Front, which controls most of the region, looks set to drag on and
could draw more players into the arena in 2023. In addition, the conflict raging in Mali and Burkina Faso
involve Isis and al-Qaida-linked jihadis, national armies, UN peacekeepers, European forces—especially
the French—and mercenary groups, including the Russian private military group Wagner. Instability will
reign and the death toll will remain high in 2023.

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Asia outlook 2023
Mixed prospects for regional heavyweights

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GURGAON DUBAI

India Tel: +971 4 4463 147
ASIA OUTLOOK 2023
MIXED PROSPECTS FOR REGIONAL HEAVYWEIGHTS
Mixed prospects for regional heavyweights
• Higher interest rates will ensure a challenging economic environment in Asia in 2023.
Growth in economies with high levels of household debt, such as Australia and South Korea,
is set to slow sharply, even as a systemic crisis is avoided.
• Political uncertainty in South-east Asia, as elections take place in Thailand and loom in
Indonesia, will encourage manufacturers to look to India as they seek to reduce reliance on
China. Improvements in India’s business environment and progress in bilateral trade deals
make it an increasingly viable investment destination.
• China’s domestic challenges, as it seeks an exit from zero-covid policies, will probably lead it
to adopt a less confrontational approach in international affairs. A reduction in geopolitical
risk would be welcomed by markets after the turbulence of 2022.
Asia will face difficult economic conditions in 2023. Several years of strong export growth for the
region will reverse, with the EU entering recession and the US economy forecast to slow sharply. The
outlook for domestic demand in Asia is also challenging as interest-rate rises implemented in 2022 to
curb inflation filter through local economies.
In addition, geopolitical risk will persist, with North Korea expected to resume nuclear testing
and Taiwan preparing for elections. EIU forecasts regional growth of 3.5% in 2023, marginally slower
than this year and short of the pre-pandemic trend of 4‑5%. Still, even this outturn would remain the
strongest among major global regions, and, as we note below, there remain bright spots.
Households in Australia and South Korea among most vulnerable to higher

rates
The impact of higher interest rates will be the major economic theme for Asia in 2023. With the
exception of China and Japan, Asia’s major central banks increased their policy rates in 2022 to
combat inflation and support local currencies. The effects of these higher rates on governments,
households and businesses will mainly be felt next year, owing to lagged monetary policy transmission.
In “Sovereign debt in Asia: modest risks, high complexity”, we wrote about the vulnerability of
governments in several frontier Asian markets to higher rates.
At the macro level, however, the main concern will be the balance sheets of households and
businesses in more advanced Asian markets that have become more leveraged over the past decade
or are not profitable enough to meet higher debt-servicing costs. The additional costs will add to
the squeeze caused by the higher consumer and producer prices generated by the war in Ukraine.
Most banking sectors are in a strong position to withstand a rise in bad debts, meaning that the risk
of systemic financial crisis is low. However, higher repayment costs will at least reduce the amount of
finance available for consumer spending and business investment, acting to slow growth; at worst, they
will cause widespread bankruptcy, leading to higher unemployment and prolonged downturns.
Our assumption is that household debt will prove the bigger concern, given that a sizable portion
of corporate liabilities in many Asian markets have some sort of government backing. In this context,

ASIA OUTLOOK 2023
Australia and South Korea stand out, with household debt in both countries exceeding 100% of GDP
(compared with an advanced economy aggregate of around 75%) and with much of that debt tied up in
frothy local housing markets. Tightening by the countries’ central banks means that rates on mortgages
and business loans will be 4‑5 percentage points higher in 2023 than 2022. We hold below-consensus
GDP growth forecasts of 1.3% and 1.5% for Australia and South Korea respectively in 2023.
Markets with high household debt are vulnerable to rising interest rates
(credit to non-financial sectors as a % of GDP; end-March 2022)
Advanced Asia Emerging Asia

Household Corporations Government Household Corporations Government
0 100 200 300 400 500 0 50 100 150 200 250 300
Australia China
Hongkong
Indien
Japan
Indonesien
Neuseeland
Malaysia
Singapur
South Korea Thailand
Sources: Bank for International Settlements; EIU.
Household debt is also high in the middle-income economies of Malaysia and Thailand, where
rates will also rise (albeit slowly). Better positioned to withstand a tighter liquidity environment will
be countries with low levels of household debt, whether advanced economies, such as Singapore, or
larger emerging markets. For example, consumer spending in India and Indonesia will continue to be
affected by cost-of-living strains, but not by any forced household deleveraging.
India has its moment, as political risk resurfaces in South-east Asia

South-east Asia has been the focus of investors’ attention in Asia as they seek manufacturing
alternatives to China. The free-trade area of the Association of South-East Asian Nations, as well as the
bloc’s centrality in various mega-regional free-trade agreements, has helped to smooth supply-chain
linkages. Transport and digital infrastructure in the region is reasonable and improving.
The region will remain attractive, but we believe it will lose some of its appeal in 2023 as political
risk resurfaces. Thailand is due to hold an unpredictable general election by May, with splits within the
ruling military-aligned political bloc giving opposition forces loyal to an exiled former prime minister,
Thaksin Shinawatra, an opportunity to return. The political instability that has come to characterise
Malaysia is set to persist, following the indecisive outcome of its November 2022 election. Indonesia
will enter a more volatile period as campaigning begins ahead of the 2024 elections and the influence of
the capable departing president, Joko Widodo, weakens.
Higher political risk in South-east Asia will present India with an opportunity to capture more
attention from global manufacturers. The dominance in India of the ruling Bharatiya Janata Party
carries its own political risks, but from an investors’ perspective it also offers policy continuity and
means there is little chance of a change in administration. India has an obvious advantage in terms of a
large and youthful labour market, while there has been incremental progress in addressing weaknesses
ASIA OUTLOOK 2023
in terms of transport infrastructure, taxes and trade regulation. The country has risen to 52nd in EIU’s
global business environment rankings, from 62nd five years earlier, and now ranks above China.
India’s business environment now competitive with China and South-east Asia
(EIU business environment rating, historic and forecast period; 10=highest score)
Changes in overall rating by market Improvements in India’s rating versus China

2018-22 2023-27 2018-22 2023-27 China 2023-27
0 2 4 6 8 10 0 2 4 6 8 10
Singapur
Foreign trade & exchange
Thailand
Vietnam* Tax regime
Indonesia* Infrastructure
India*
Private enterprise policy
China*
Philippines* Financing
Source: EIU. *Indicates rating is below the global average.
Developments on the ground appear to support this view. Investment has accelerated in the
electronics sector (an industry that India has previously struggled to cultivate), aided by government
support provided under the so-called production-linked incentive scheme. The country’s electronics
exports rose by around 50% to US$14bn in 2021 and had already matched that value over the first
nine months of 2022. Taiwan’s Foxconn is among the suppliers to Apple (US) to be planning significant
expansion in India, as it seeks to diversify its manufacturing capacity beyond China. In 2023 India’s
presidency of the G‑20, as well as the probable conclusion of bilateral trade agreement negotiations
with Australia and the UK, will further help to highlight investment opportunities in the country.
Distracted by domestic affairs, China tries a different geopolitical approach

China’s economy is forecast to grow more quickly in 2023 than this year, as covid‑19 management
becomes more pragmatic. Still, a smooth shift away from “dynamic zero-covid” policies will be tricky
to pull off, and the risk of a chaotic outcome—involving a stretched health system and a significant
death toll—will be high. The issue will absorb the attention of the president, Xi Jinping, and the new
leadership team that he recently assembled, among whom several (including the incoming premier, Li
Qiang) problematically lack experience in running the organs of China’s central government.
These challenging domestic circumstances could persuade China to adjust its international
approach. An assertive, hardline diplomacy has taken hold under Mr Xi, involving combative responses
to US political and economic pressure and a willingness to go further in pushing Chinese territorial
claims in relation to the South and East China Seas, Taiwan and its border with India. Welcomed
at home as a demonstration of China’s rising strength, the trade tariffs, sanctions and heightened
geopolitical risk that have come with this muscular foreign policy have nevertheless dragged on China’s
economy and made international firms cautious about expanding their footprint in the country.
While China is not about to conduct a foreign policy U-turn, especially with Mr Xi still in charge,
we believe that it will seek more favourable international conditions in 2023 as it manages domestic
challenges. There were signs of this approach at the G‑20 summit in November 2022, when Mr Xi
ASIA OUTLOOK 2023
sought meetings with a range of counterparts (including from Western countries) and overall struck
a conciliatory tone. This revealed some sensitivity to the pitfalls of a hardline approach, and possibly a
recognition that a co‑operative attitude will make it more challenging for the US to persuade countries
in Asia (and elsewhere) to follow its approach towards China, such as with regard to tighter controls on
technology exports.
Tighter US controls on tech exports to China will hurt Asian exporters

(exports to China of semiconductors and related parts by market, 2021)*
Export value (US$ bn) As a share of total semiconductor exports (%)
50 50
40 40
30 30
20 20
10 10
0 0
Taiwan South Korea Singapore US Malaysia Japan
Sources: ITC Trade Map; EIU. *HS code 8541.
Areas to watch for meaningful change in Chinese policy will include trade purchasing commitments
and concessions, with the lifting of punitive tariffs on Australian goods among realistic possibilities.
Diplomatically, look for the country to play a more constructive role in mediating the crisis that would
be caused by a North Korean nuclear test than it has done in the Russia-Ukraine conflict. Restraint
ahead of Taiwan’s elections in January 2024 would be a further indication of change. China’s domestic
preoccupations will mean a further sidelining of the Belt and Road Initiative, but probably also a
willingness to work alongside other creditors in resolving sovereign debt crises.
Assuming that China adopts a less assertive foreign policy, it will probably prove selective and focus
on countries it hopes can be dissuaded from aligning tightly with the US. Such a move could also
be temporary, with an underlying trend towards assertiveness resurfacing in future years as China
moves beyond its domestic problems. However, any reduction in geopolitical risk will be welcome for
companies and investors after the turbulent events of 2022.

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Europe outlook 2023
The threats to Europe’s
industrial competitiveness

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GURGAON DUBAI

India Tel: +971 4 4463 147
EUROPE OUTLOOK 2023
THE THREATS TO EUROPE’S INDUSTRIAL COMPETITIVENESS
The threats to Europe’s industrial

competitiveness
• Energy market dynamics for Europe in 2023 will be as challenging as in 2022. Natural gas
storage in Europe is likely to be completely depleted by the spring, while little new import
capacity will yet be available.
• High energy costs and falling demand are forcing industry across Europe to idle. Input
costs will remain elevated for several years, making some European industrial sectors
uncompetitive, and resulting in a loss of global market share.
• Chemicals and base metals will be the worst affected owing to their high reliance on natural
gas as an input, but downstream industries such as the automotive sector will also suffer.
• China is set to benefit at the global level. Within the region, we expect a shift towards
production in southern Europe from central Europe, with services holding up better than
goods production.
The stark increase in energy costs for the European industrial sector in 2023 and beyond will have a
significant impact on the competitiveness of European industry. In addition, the coming recession will
reduce domestic demand for industrial products; with global freight costs now declining as pandemic-
related supply-chain disruption eases, import substitution is becoming more attractive. European
industry already had a higher cost base than other advanced economies. A further increase will make
producing in Europe an unprofitable business strategy for many energy-intensive firms.
Increases in European input costs outpace other advanced economies

(producer price index; 2021=100)
Canada France Germany Italy Japan UK US
180
160
140
120
100
80
60
2012 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Source: EIU. *EIU forecasts from 2023.

EUROPE OUTLOOK 2023
Given increasing geopolitical uncertainty and the size and expense of moving capital-
intensive processes to Asia, we do not expect a trend of relocation. Instead, we expect firms to
shut down some European production (possibly permanently) and replace it over time by increasing
production elsewhere. However, these dynamics will be felt differently across industries. In this article,
we examine four key sectors in which the impact will be particularly acute.
Energy: the transition accelerates

The push towards renewables will support European firms involved in the energy transition, with
streamlined regulatory arrangements and greater subsidies. However, China will remain the global
leader in overall production, with 76% of all photovoltaic cells produced there (compared with less than
14% in Germany). Even on new installations, 2020 data show the EU falling further behind China, and
drawing level with the US. Wind energy faces similar dynamics.
Despite the gas crunch, hydrocarbon production in Europe will not significantly increase, with the
exception of North Sea drilling in Norway and the UK. Increased nuclear power is planned in France,
Sweden and the UK, as well as in central Europe, but all those initiatives will take several years to come
online. On the corporate level, major energy firms—including Uniper, EDF and others—are facing
significant strain as they scramble to replace Russian supplies, limiting their potential to be major
investors in global projects.
The construction of new gas infrastructure is designed to be dual-use with hydrogen to future-proof
the infrastructure investment. This will result in governments looking increasingly favourably on
hydrogen projects, which can make use of the infrastructure. However, the widespread take-up of
hydrogen is still several years away and likely to be concentrated in sectors making the higher upfront
initial investment.
Metals: eye-watering costs

Extremely high energy usage in the smelting process, as well as falling prices for metals such as
aluminium and zinc, is eroding profitability in the metals sector. Average monthly wholesale electricity
prices in key countries reached about €375/MWh in September, a tenfold annual increase. For
aluminium, the most energy-intensive metal to smelt (at 14 MWh/tonne of primary production), this
implies a power input costing US$5,200/tonne, more than double the spot price of aluminium (less
than US$2,300/tonne). Other metals such as steel, although less energy intensive, are seeing similarly
unviable cost dynamics. Operating smelters under such conditions is not sustainable, even for
short periods of time, and over half of productive capacity in Europe is now idle.
Even plants with long-term power contracts will be at risk as these come up for renewal. The longer
wholesale prices remain above €100/MWh—they were at about €200/MWh in early November—
the more challenging it will be to renew at affordable rates. Even firms with access to power under
preferential tariffs have had to cut production. Some smelters have maintained some production by
avoiding peak usage times; but many cells can only remain without power for a few hours without
risking a costly metal freeze. Given these extreme operating conditions, the risk of further
smelter closures remains high.

EUROPE OUTLOOK 2023
Chemicals: no substitute for gas

The chemicals sector is second only to metals in terms of energy intensity, with natural
gas being a feedstock for many chemicals as well as a source of heat generation, making
substitution particularly difficult. Production of ammonia (of which natural gas is a feedstock) is
particularly uncompetitive at present, and about 70% of Europe’s fertiliser production capacity has
been halted. Most will not be restarted, raising risks for crop yields in the short term and a loss of
market share in the longer term.
BASF, Germany’s largest chemical firm, uses as much energy annually as the energy usage of
Denmark. With the European cost base already higher than in other developed markets even before
the crisis, and set to remain at this elevated level throughout our forecast period (2023-27), this is no
longer a profitable business model, and the company plans to permanently downsize its operations in
the region. Europe is therefore set to lose global market share for the chemical industry, with
China (already the largest player) poised to benefit.

EUROPE OUTLOOK 2023
European energy consumption for metals and chemicals is huge

(2019)
Energy consumption (% of industry) Gross value added (% of manufacturing)

Metals Chemicals Metals Chemicals
0 5 10 15 20 25 30 0 2 4 6 8 10 12 14
Germany Germany
France France
Italy Italy
Spain Spain
Sources: International Energy Agency; UNIDO; EIU.
The wider recession will reduce demand in Europe, further eroding the chemicals sector. Demand
for industrial fibres, polymers and plastics used in construction and car manufacturing is falling, and
inputs for (now idled) industrial processes, such as caustic soda, vital for aluminium smelting, are no
longer in demand.
Automotive: less affected, but already in a slump

Although less directly energy intensive than other sectors, the automotive industry represents
about 7% of EU economic output and supports vast upstream and downstream supply-chain
networks throughout Europe. In addition to firms’ direct energy use, which now costs more, input
prices have risen for energy-intensive metals, glass, semi-manufactured input goods (especially
electrical wiring from Ukraine and mineral goods from Russia) and critical inputs for electric vehicles.
A weak global automotive outlook is hurting European exports
Global motor vehicles and parts market demand Machinery and transport equipment trade balance
(% change, year on year)* (EU27; € bn)*
12 25
8 20
4 15
0 10
-4 5
-8 0
-12 -5
2018 19 20 21 22 23 24 25 26 2018 19 20 21 22
Sources: Eurostat; EIU. *EIU forecasts from 2023.
Automotive facilities in Europe were already grappling with over-capacity even before the
pandemic; the recession will further reduce demand both within and outside Europe. We expect that
this will lead automakers to cut back investment and production in the region as it becomes
unprofitable amid higher energy and labour costs. However, weaker price inflation in southern
EUROPE OUTLOOK 2023
Europe presents an opportunity for automakers to nearshore some energy-intensive production

processes southwards to Mediterranean countries, where liquefied natural gas (LNG) terminals are
already functional and keeping energy costs contained.
Conclusion: what to watch out for

The increase in European industry’s already high cost base will be a net loss for the continent. Within
the industrial sector, the impact will be most keenly felt in chemicals and fertilisers, sectors in
which natural gas is a direct input to the final product, whereas sectors such as automotive, which
use gas for energy, but with possible alternative power sources, will see significant substitution and, as a
consequence, less lasting scarring. The gas crunch also creates opportunities for firms that can provide
effective substitutes for gas in industrial processes, which may also drive innovation in the energy and
materials spaces. Pressure on heavy industries is likely to see the less energy-intensive service
sector hold up better through the recession and be more likely to drive future growth.
Business confidence for industry has fallen further than for services
(seasonally adjusted; % balance of responses)
France Germany Italy Spain
Industry Services
30 30
20 20
10 10
0 0
-10 -10
-20 -20
J F M A M J J A S O N D J F M A M J J A S O J F M A M J J A S O N D J F M A M J J A S O
2021 2022 2021 2022
Sources: European Commission; EIU.
Globally, China is well positioned to benefit, with pre-existing cost base and scale advantages
in metals, chemicals, and solar and wind installations. Regionally, southern Europe will see its
competitiveness within Europe increase, as it has more installed LNG and pipeline capacity, at the
expense of central and eastern Europe. Southern Europe also benefits from milder winter climates
and greater reliance on services to begin with.
Firms active in the green transition stand to benefit, as subsidies and new forms of energy
generation will raise profitability in the medium to long term. One issue to watch out for is the
introduction of the EU Carbon Border adjustment mechanism in 2026. This may present a
competitive advantage for chemicals producers in Europe, which already score well on green metrics,
and will be an important consideration for European firms currently expanding production in non-EU
markets but planning on importing to the EU.

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Latin America
outlook 2023
Spotlight on new governments

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GURGAON DUBAI

India Tel: +971 4 4463 147
LATIN AMERICA OUTLOOK 2023
SPOTLIGHT ON NEW GOVERNMENTS
Spotlight on new governments
• Latin America is facing significant global headwinds that will weigh on the economic outlook
for 2023. Domestic policy will be holding growth back too, amid still-tight monetary policy
and looming fiscal consolidation.
• However, perhaps the most significant development to watch in Latin America in 2023 is the
success or failure of the many new governments in the region as they attempt to address the
voter demands that swept them into office, all while grappling with serious macroeconomic
dilemmas and divided legislatures.
• Despite this difficult political and economic environment, there will be opportunities
for growth in 2023, particularly in agriculture, mining and nearshoring. However, to take
advantage of these, the region’s new governments will have to roll out policy reforms in
2023 that respond to public concerns without causing too much damage to the investment
climate. In this white paper, EIU highlights some of these challenges.
As the pandemic ebbs, a leftward tide rises

End-2019 End-2022
Far right
Right of centre
Left of centre
Far left
No data
Note. Brazil's new left-of-centre government will take power in January 2023.
Source: EIU.

For Latin America’s new presidents, now comes the hard part: governing
Latin America had another big election year in 2022, with important implications for policymaking in
2023 and beyond. Policy shifts are on the cards as voters call for change, not only on issues with
a particular regional significance like crime and corruption, but also on the economy. One one—of
consequence of the crises that have buffeted Latin America in the past three years is an increasing
demand for a big state that spends more and regulates more. Accordingly, over the past year voters
have elected candidates on the left of the political spectrum who are promising that kind of shift. It
is no coincidence that tax reform—in order to ring-fence social spending—features among the top
priorities of new leftwing governments in Chile and Colombia. Greater regulation (and taxation) of
important commodity sectors, which are perceived to be the “winners” of the 2022 commodity shock,
also looks likely.
However, Latin America’s new left-wing
Most recently elected presidents have had presidents will not find governing easy. A collapse
short honeymoons or none at all
in electoral support for the moderate centre
(net approval rating, %)
across the region has enabled populist right-
Guillermo Gustavo Gabriel Pedro
Lasso Petro Boric Castillo wing political movements (in some cases, far-
80
60
right ones) to gain ground too. Some of these
40 movements have control of Congress and could
20 easily block legislation; most countries have an
0 extremely fragmented and divided legislature,
-20 making for, at best, a fractious process of
-40
mustering support on a bill-by-bill basis. This is not
-60
T T+1 T+2 T+3 T+4 T+5
altogether a bad thing, as it represents something
Note. T represents the first month in office. of a policy straitjacket and a moderating force,
Each subsequent month is numbered.
Sources: Cadem; Invamer; IPSOS Perú; Perfiles de Opinión; EIU.
guarding against radical changes to the business
environment.
Nevertheless, it will make policymaking a slow
process, which may frustrate public demands for speedy—and substantial—results. Expectations
have been raised by the current election cycle, and Latin America’s new presidents will find
it hard to come up with the goods; in this context, honeymoon periods will be extremely short and
disillusionment will be quick to set in. All of this raises the risk that, having turned up to the ballot box
to effect change this year, voters will resort in 2023 to the kind of large-scale protests that rocked the
region in 2019.
US-China rivalry will create problems and some (nearshoring) opportunities

too
The decoupling of the US and China—forcing other countries to choose sides on strategic issues
in an increasingly bifurcated global economy—will be a major trend underpinning geopolitics and
geoeconomics for decades to come. The effects of this are already being felt in Latin America, and that
will remain the case in 2023. A crucial question is, of course, which side of the divide Latin American
countries will fall. In reality, the region’s governments view both the US and China as important

partners and will not want to choose between them. If and when they are forced to take sides on
strategic issues like tech development, we think that the US will come out on top. For the most part,
Latin America has strong diplomatic ties with the US, even in countries (particularly the big commodity
producers in South America) where China has become the most important trade partner.
However, the decision is far from being clear-cut, bearing in mind that while China has been rolling
out its Belt and Road Initiative (BRI) across Latin America, the US government has had little to put on
the table. In our view, the lack of US engagement largely reflects the reluctance of US private-sector
firms to invest in certain countries in the region for one reason or another (traditional obstacles have
included weak infrastructure, low productivity, corruption concerns and macroeconomic instability).
The promising Build Back Better World (B3W) initiative that was announced by the US administration
(in conjunction with European governments), focusing on infrastructure in areas such as health,
technology and climate, has failed to get off the
ground. Latam labour cost competitiveness boosted
In this environment, China is likely to by rapid Asian wage growth
make further inroads into Latin America in (labour costs per hour, US$; 2026 forecast)
2023, in strategic areas like lithium mining, and 0 5 10 15 20 25 30 35

US
in countries like El Salvador, where increasing China
authoritarianism is putting the country at odds Brazil
with the US, traditionally a close ally. A country to Chile
Indien
watch in 2023 will, of course, be Brazil, where Luiz
Thailand
Inácio Lula da Silva will take over as president in Colombia
January. Although Lula enthusiastically increased Mexico
engagement with China when serving as president Vietnam

Peru
back in the 2000s, we think that he will try to strike Indonesia
a balance between the two superpowers and keep Source: EIU forecasts.
both on side (as far as possible) this time around.
Meanwhile, the bifurcation of the world economy will present a huge opportunity for Latin
American countries in the form of nearshoring. The year 2023 could well bring more investments
to this end, particularly in Mexico. Our own analysis shows that Latin America is becoming increasingly
competitive vis à vis the rest of Asia on labour costs, and it has other advantages such as proximity to
the US. However, many countries in the region simply have too many disadvantages in too many areas,
including weak infrastructure, low levels of skills and technological readiness, and political concerns
about predictability, stability and security. Compared with major Asian economies, our business
environment rankings suggest that Mexico, Costa Rica, Chile and Brazil are best placed to compete
and benefit from nearshoring trends. Anecdotal evidence suggests that Mexico has indeed made some
progress on this front; its share of US goods imports appears to be growing steadily. However, there
are broader concerns about contract rights and the rules of the game in Mexico that will constrain the
country’s vast nearshoring potential in 2023.

Some Latam economies are better placed than others to compete for nearshoring investment
(score out of 10 in the business environment rankings)
Political Foreign trade & Labour Technological
FDI policy Infrastructure Average
effectiveness exchange controls market readiness
Taiwan 7.8 8.2 9.1 6.9 7.8 9.2 8.2
Chile 7.1 8.2 8.7 6.5 7.0 7.8 7.5
Malaysia 6.4 7.8 8.2 6.9 7.0 7.8 7.4
Costa Rica 7.1 7.3 8.7 7.6 5.0 6.3 7.0
Mexico 5.3 6.9 9.6 6.4 6.0 6.9 6.8
Vietnam 5.7 6.0 8.7 6.6 6.0 6.9 6.6
Brazil 5.3 7.8 8.2 6.0 4.6 6.6 6.4
China 4.1 5.1 6.4 6.2 6.8 8.9 6.3
Colombia 5.2 6.9 6.9 5.9 6.0 6.3 6.2
Dominican Republic 5.8 7.3 8.7 5.2 5.5 4.4 6.1
Peru 3.9 6.4 8.7 5.7 5.5 5.2 5.9
Argentina 6.0 6.0 5.1 5.5 5.5 6.6 5.8
Ecuador 5.0 6.4 7.3 5.1 5.3 3.5 5.4
Source: EIU, business environment rankings.
Water, water everywhere? Water supply will become a major political issue
Latin America has the most abundant water resources in the world. However, sources of water supply
are not always well connected to sources of water demand, and droughts are becoming increasingly
common, putting resources in many countries in the region under severe strain. The situation in 2023 is
likely to be no different; according to the US climate prediction centre, there is a 76% chance of the La
Niña weather pattern occurring in the approaching northern hemisphere winter (December-February).
This would mark a rare “triple dip”—a third straight year of La Niña (and the drought conditions that it
brings) for much of Latin America.
Whether drought conditions persist in 2023 or ease slightly, the issue of water stress
(the gap between water demand and supply) will not go away, and is in fact likely to be high
on policymakers’ agendas for next year, considering the severe and widespread knock-on effects of
drought and water stress. The region’s traditionally vast water resources have led to a heavy reliance
on hydropower for electricity generation, meaning that low water levels can result in power supply
problems, as seen in Brazil in 2021. Latin America’s big agricultural powerhouses are also extremely
susceptible to drought conditions, as reflected in underwhelming production figures in some countries
in the past couple of years, even in an environment of high prices. Goods exports can be affected by
drought too; a crucial river transport route that conveys Paraguayan exports to Argentina (from where
they travel on to other important export markets) has dried up, curbing transits. The risk of these
problems recurring in 2023 is high.
Above and beyond this hit to activity, the water issue will become a pressing political and
policy question in 2023, as all of the main water consumers (business users in industry, agriculture
and mining) will attract criticism from the public and politicians alike for contributing to household

Latin America faces drought risk and water stress

Drought risk (0-1; 1=worst) Water stress (0-5; 5=worst)
0 0.2 0.4 0.6 0.8 1.0 0 1 2 3 4 5
Haiti Chile
Cuba Mexico
Dominican Republic Guatemala
Nicaragua Peru
Paraguay Venezuela
Uruguay Cuba
Honduras Dominican Republic
Mexico Haiti
Ecuador Ecuador
Brazil Argentina
Argentina Bolivia
Peru Costa Rica
Venezuela Brazil
Colombia Colombia
Chile Belize
Costa Rica Honduras
Bolivia Panama
Suriname Nicaragua
Low risk High risk Low stress High stress
Note. Water stress is the gap between water demand and water supply.
Sources: Aqueduct, World Resources Institute; EIU.
water shortages. Business supply has not been badly affected by drought conditions to date, owing to
generous long-term water supply contracts that were signed before the problem of water stress arose.
Now, however, these contracts are coming under fire in the likes of Mexico and Chile (both of which
are among the top 25 water-stressed countries in the world). In Mexico, the president, Andrés Manuel
López Obrador, has already threatened to end brewery operations in the drought-affected north of the
country, and although this may simply be bluster, there is a risk that he will follow through on this threat
in 2023. In Chile, meanwhile, the regulation of scarce water resources will undoubtedly be taken up in
a renewed effort to rewrite the constitution that is getting under way. In both countries (as in the rest
of the region), there is a strong chance that new regulations end up crimping future mining and
agriculture development.
Agriculture: filling the grains gap?

The upending of global agricultural supply chains amid the Russia-Ukraine war raises the question of
whether Latin America’s agricultural powerhouses can step in and fill a supply gap left by the loss of
Ukrainian production. The answer is yes (in Brazil) and no (in Argentina). Brazil and Argentina are
the region’s two large global agricultural commodity producers; in fact, Brazil is the world’s largest net
agricultural commodity exporter. Both are top exporters of soybeans and corn, and Argentina is also an
important wheat exporter. However, despite these apparent similarities, the nearterm fortunes of the
agriculture sector in the two countries look very different.
This is partly down to luck. According to official projections, climate conditions will be fair in Brazil,
whereas Argentina is set to record a third consecutive annual drop in overall grain production on
the back of continued drought conditions. Argentina’s soil is naturally highly fertile and requires less
fertiliser per hectare than is the case in most other countries, but even so, a drop in fertiliser use in

the face of spiking global prices will also constrain yields. Farmers have responded to the rising cost of
inputs like fertiliser with crop switching, for example by shifting from corn to soybeans, which are more
resilient to dry weather and less fertiliser-intensive.
Luck is not the only factor, however; Argentina is facing other headwinds that will prevent an
expansion of investment and production in 2023 (and beyond). Years of macroeconomic instability
have subdued investment, as have a heavy burden of export taxes (imposed to secure much-needed
access to foreign exchange) and export quotas (introduced in a misguided attempt to contain
domestic prices). These factors also reduce the incentive for farmers to try to take advantage of
still-high global prices by ramping up production. The Argentinian government has tried to tempt
them to boost output through a de facto subsidy in the form of a parallel exchange rate for the sector
(the idea is to boost pesos earned for each dollar of exports and discourage stockpiling, which the
country’s farmers have a long tradition of doing as they await another of Argentina’s frequent currency
devaluations). Even so, the near-term outlook for Argentina’s agriculture sector is discouraging.
Grains production lags in Argentina and booms in Brazil

(m tonnes)
Argentina’s output continues to falter Brazil will post a record harvest in 2023
Soybeans Corn Wheat Soybeans Corn Wheat
300 300
250 250
200 200
150 150
100 100
50 50
0 0
2011 12 13 14 15 16 17 18 19 20 21 22 23 2011 12 13 14 15 16 17 18 19 20 21 22 23
Sources: Secretaría de Agricultura, GanaderÍa y Pesca; BCR; Conab; EIU. Note. 2023 are latest projections.
Brazil, meanwhile, looks set for a record harvest in the 2022/23 crop year. The principal factors
supporting this outlook include early efforts by Brazilian farmers to ramp up fertiliser imports, enabling
them to secure crucial supplies and protect yields. Although the cost of fertilisers has rocketed, high
soft-commodity prices will still provide Brazilian farmers with a solid profit margin. Another significant
driver behind the increase in agriculture production in 2022/23, as in the past decade, is an expansion of
arable land dedicated to crop production.
Looking ahead, however, this very expansion is a potential obstacle for the sector in Brazil. The
US Department of Agriculture recently projected that land dedicated to agriculture, which currently
stands at just over 40m ha, could expand by another 20m ha in the next decade. However, at least
some of the recent expansion has been in areas surrounding the Amazon, giving rise to substantial
environmental concerns and suggesting that when Lula takes office in January, he may impose
restrictions on agriculture in order to meet global environmental commitments. Finding a way
to comply with these commitments without disrupting one of the fastest-growing—and
important—sectors of Brazil’s economy, will be a tough challenge for Lula in 2023 and beyond.

Mining reform on the agenda as Latin America holds the key to the global
energy transition
A number of factors—including post-pandemic “build back better” infrastructure initiatives and
increasing public demands for clean energy in the battle against climate change—are raising demand
for mining minerals that are crucial to the global energy transition. At the same time, the race to
secure reliable sources of supply is heating up owing to global supply-chain issues and the intensifying
US-China rivalry. These trends have shone a spotlight on Latin America’s abundant supply of
strategic minerals such as lithium, copper, nickel, cobalt and rare earth elements.
Latin America is home to some of the world's largest deposits of minerals crucial to the
global energy transition
(global ranking of mining reserves)
Cuba 4 4
5 9 Mexico Brazil 3 3
3 Peru
1 Bolivia
Cobalt
Copper 1 2 Chile
Lithium
Nickel
Argentina 3
Rare earth elements
# Global reserves ranking
Sources: US Geological Survey; EIU.
Latin America is home to a significant portion of all of these minerals: well over half of the world’s
lithium is in the region (mostly in the “lithium triangle” of Bolivia, Argentina and Chile); Chile has the
world’s biggest supply of copper; and Brazil holds the third-largest reserves of rare earth elements
(about 10% of the global total). In a few cases, production levels reflect these large stocks. Chile and
Peru, for example, are long-established global leaders in copper mining. However, although foreign
investment in mining in Latin America is extensive, production of these materials does not, for the
most part, come anywhere near potential, even though they are so critical for technology and clean
energy. Bolivia’s lithium resources have, for example, barely been commercialised at all.
There are several major obstacles to production. One, of course, is the weak overall business
environment in some Latin American countries, which raises business concerns about contract rights
and the rules of the game. Another is the complex nature of some of these mining operations, as they

require large investments and technical expertise. For example, Bolivia’s salt-pan lithium deposits
are harder to access than Australia’s hard-rock deposits. A third issue is an increase in protests and
blockades by local communities, both on environmental grounds and in order to ensure that they
get what they perceive to be a fair share of the rewards from local mining activity. Finally, and most
importantly, the mining regulatory regime in much of Latin America is in flux. Among their other
priorities, new governments across the region are seeking to address voter demands for stronger
environmental regulation and fairer water usage. They will also want to fund spending by amending the
tax and royalty rules that govern these windfall commodities.
Latam has huge lithium resources, but production is lagging

% of % of
Lithium resources (m tonnes; top ten; 2022) global total Lithium production (’000 tonnes; 2021) global total
0 5 10 15 20 25 0 10 20 30 40 50 60
Bolivia 24 Australia 53
Argentina 19 Chile 25
Chile 11 China 13
Australia 7 Argentina 6
China 5 Bolivia 0 0
DRC 3 DRC 0 0
Canada 3 Canada 0 0
Germany 3 Germany 0 0
Mexico 2 Mexico 0 0
Sources: US Geological Survey; EIU.
In 2023 therefore, a major task in countries like Chile (where a process to rewrite the constitution will
undoubtedly touch on the mining sector) is to clarify via pending reforms the new rules for the mining
sector. To the extent that these address environmental concerns while still allowing for profitable
private-sector operations, the stage will be set for a ramping-up of production. If, however, new
regulations put Latin American mining operations at a substantial cost disadvantage relative to other
global producers, or if governments push for their cash-strapped public sectors to lead the way on
mining development, output will prove disappointing.
Given the region’s ample resources, we expect next year to bring more investment
announcements as companies accept the risk of a bumpy ride in order to secure resources, but
output is likely be slow to approach its potential, in 2023 at least. Moreover, there is a significant risk
that output of key minerals such as copper falls back in the long term, as local protests grow in strength
and the mining framework becomes less attractive.

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Middle East
outlook 2023
Weathering political and
economic headwinds

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GURGAON DUBAI

India Tel: +971 4 4463 147
MIDDLE EAST OUTLOOK 2023
WEATHERING POLITICAL AND ECONOMIC HEADWINDS
Weathering political and economic

headwinds
• Economies across the Middle East face mixed prospects in 2023, which will help to drive
comparatively strong growth in the energy-rich Gulf Co-operation Council (GCC) states but
hold most other economies in check.
• The region’s travel and tourism industry is showing strong signs of recovery and
international visitor arrivals could return to pre-covid levels by the end of 2023—largely
owing to effective promotional campaigns, major investments and the release of pent-up
demand.
• Troubled states face a very uncertain and insecure future—especially internationally

sanctioned Iran and war-torn Syria and Yemen—where conditions are unlikely to improve
and could easily deteriorate.
• Major players in the Middle East—including Saudi Arabia, the UAE and Iran—will continue
to look eastwards towards Asia for trade, investment and political ties, which could further
strain relations with Europe and the US. Another year of difficult balancing acts is in store.
Major oil and gas producers in the Middle East have benefited substantially from strong global
demand, rising output and high prices for their energy exports in 2022, and the region’s net energy
exporters—except internationally sanctioned and economically unstable Iran—can look forward to
another year of decent returns from international markets in 2023. The OPEC+ alliance will solely
prioritise price levels, despite concerted diplomatic efforts by the US and European allies
to persuade the cartel to increase production. The recent move by OPEC+ to cut output by 2m
barrels/day will be borne by Saudi Arabia and, to a lesser degree, the UAE. The actual cut to output
will be about half the headline figure, as several major producers, most notably Nigeria and Russia,
are producing well below their current quotas. We expect OPEC+ to maintain its solidarity and
forecast that oil prices will remain above US$90/barrel until at least mid-2023.
Oil prices
US$/barrel; Brent % change
120 80
100 60
80 40
60 20
40 0
20 -20
0 -40
2018 19 20 21 22* 23† 24† 25† 26† 27†
Sources: International Energy Agency; EIU. *EIU estimates. †EIU forecasts.

The GCC states and Iraq will benefit the most from international energy market developments in
2023, with GCC states seeing high oil and gas revenue spill over and help to drive business activity in
non-energy sectors—especially through state-backed investment in economic diversification projects.
Inflation will be contained across the GCC in 2023 by exchange-rate pegs to the US dollar and fuel
subsidy regimes. Elsewhere, elevated price pressures will weigh heavily on economic growth and
stability in the region’s more troubled states and some major energy importers—namely Lebanon,
Syria, Yemen and Iran, as well as Egypt and Turkey. These countries face another year of double-digit
annual consumer price inflation—hyperinflation in the case of Lebanon and Syria—which will cause
economic hardship and in some cases fuel anti-government sentiment and protests.
Middle East: inflation, 2023 Middle East: economic growth, 2023

(av; %) (real GDP; % change, year on year)
0 10 20 30 40
Lebanon 167% Turkey
Syria 63%
Yemen Lebanon Syria
Turkey Israel Iraq Iran
Iran Palestine
Ägypten
Kuwait
Iraq Jordan Bahrain
UAE Egypt Qatar
Israel Saudi
Palestine Arabia
Qatar Oman
Kuwait
Bahrain
Jordan Yemen UAE
Oman
Saudi Arabia 0.0 2.0 4.0
Source: EIU.
Downside risks prevail

The balance of risks to the region’s outlook is heavily weighted to the downside, which reflects various
global and regional shocks that could act to undermine economic growth and stability, social cohesion
and security. Upside risks are limited to a low-probability scenario surrounding a quick resolution of
the war in Europe leading to less volatility in commodity markets—food and fuel—and easing prices
pressures, as well as the low risk of a stronger rebound of demand from China as covid-19 disruption
dissipates and the authorities guide the economy to much faster growth.

Middle Eastern countries are confronted with risks that could disrupt their economies
Risk
Scenario Probability Impact
intensity*
Regional conflict zones. Unresolved regional conflicts – especially in Syria
and Yemen – escalate and spill beyond national borders to damage economic High High 16
infrastructure in nearby states and stoke regional tensions.
Rapprochement efforts dissipate. Relations between Iran and the West
deteriorate sharply and scupper plans to revive the Iran nuclear deal, while Iran
High High 16
escalates tensions with Saudi Arabia and Israel by pursuing its nuclear and missile
programmes coupled with a regional “shadow war”.
Chinese slowdown. China’s economy decelerates rapidly and depresses energy
High High 16
and non-energy trade and investment flows to and from Asia.
US-China tensions. Rivalry and tension between the US and China intensify,
which dampens bilateral trade, accelerates global decoupling and puts pressure Moderate High 12
on states to take sides.
New coronavirus variants. New variants of the coronavirus spread across the
Middle East and in key trade partners - especially China and Europe – disrupting Moderate Moderate 9
domestic business, export markets and supply chains.
Escalation of war in Europe. The war in Ukraine triggers open conflict between
Russia and NATO members, further destabilising Europe, disrupting global supply Very low Very high 5
chains and adding volatility to commodity and financial markets.
Intensity colour key: 1 to 4 5 to 8 9 to 12 13 to 16 17 to 25
*Intensity is a product of the probability and impact scores, where “very low” scores 1 and “very high” scores 5.
Source: EIU.
Focus on business sector reform

Business conditions across the Middle East will differ greatly by country in 2023. Business conditions
in the GCC states will be the most favourable in the region, supported by buoyant energy sectors, the
recycling of oil funds into the wider economy and ongoing business and economic reform programmes.
Strong purchasing managers’ indices (PMIs)—which record business activity in the non-oil private
sector with a 50 threshold that separates expansion from contraction—for most GCC states are
suggestive of relative health and momentum of non-energy private business sectors in the short term.
Competition between Saudi Arabia and the UAE to establish leading business hubs will intensify,
although this will also create space for co-operation and joint ventures given the scope for mutual
benefit and the pragmatic nature of intra-GCC business investment. GCC states will continue to push
for openings in new sectors and to attract foreign private investment, which will be supported by well-
capitalised, profitable and strong financial sectors and already enacted pro-business reforms.
Business conditions will continue to be very challenging in Syria, Yemen, Iraq, Lebanon and
Iran owing to a range of factors including sluggish growth prospects, high unemployment, social
instability, international sanctions and conflict. In the case of Egypt and Turkey, volatile and unstable
macroeconomies—including weak currencies, high rates of inflation, rising interest rates and
uncertainty about the direction of economic policy—will represent a difficult backdrop for business
operations in 2023.

Manufacturing purchasing managers' index, October 2022

(a reading above 50 indicates an expansion of the non-oil private sector compared with the previous month; below
50 represents a contraction; 50 indicates no change)
40 45 50 55 60
Saudi Arabia 57.2
UAE 56.6
India 55.3
Philippines 52.6
GCC states' purchasing managers'
Nigeria 52.3
index (PMI) covers non-oil private
Indonesia 51.8
sector business activity
Thailand 51.6
Israel 51.3
Brazil 50.8
Japan 50.7 Middle East: business
Vietnam 50.6 operating risk
US 50.4
(Q3 2022; 0=low; 100=high)
Mexico 50.3
Kenya 50.2
Türkei
South Africa 50.0
Singapore 49.7 Lebanon Syria
Israel Iraq Iran
Hong Kong 49.3 Palestine
Kuwait
China 49.2
Jordan Bahrain
Lebanon 49.1 Qatar
Ägypten
Malaysia 48.7 Saudi
Qatar 48.4 Arabia
South Korea 48.2 Oman
Egypt 47.7
Turkey 46.4 Yemen UAE
Taiwan 41.5 0 50 100
Source: EIU.
Recovery in travel and tourism

Business activity, revenue and profitability in the travel, tourism and hospitality industries in the
Middle East have taken a major hit in recent years stemming from the covid-19 pandemic and then
the Russian invasion of Ukraine. However, a corner appears to have been turned and momentum is
building with international arrivals on the upswing in 2022 and a full recovery to a pre-covid levels of
Gulf Co-operation Council: international Dubai: international tourist visitors

tourist arrivals (m)
(m) 20
UAE Saudi Arabia Bahrain 16.7
Kuwait Qatar Oman 15.8 15.9
14.9 15
80 14.2
70.8 70
65.1 64.6 66.3
60
10
50
40 7.3 7.1
27.7 30 5.5
5
17.7 20
10
0 0
2016 17 18 19 20 21 2015 16 17 18 19 20 21 22*
Sources: Local sources; EIU. *Jan-Jun.

arrivals expected in late 2023 (or early 2024). The recovery will be aided by major sports and cultural
events—Qatar is hosting the FIFA World Cup in November and December 2022 and the AFC Asian Cup
in 2023, while Saudi Arabia will increase the numbers of foreign visitors allowed to attend the annual
haj pilgrimage. These and other locations, including major tourism hubs in the UAE and Oman, are
redoubling their efforts to promote their tourism offer in major export markets in Europe and Asia, as
well as reassuring visitors through high-level health and security measures.
Domestic tourism has supported a depressed market in recent years and this will continue to be an
important outlet for the tourism sector, along with regional arrivals. International arrivals to the GCC
were back on an upswing and accelerated quickly in late 2021 and in 2022, and looking ahead they
will be aided by vaccine rollout and safety measures, lighter travel restrictions, a further promotional
drive and the release of pent-up demand for travel and tourism. In the longer term, travel, tourism and
hospitality are identified as key ingredients of strategic growth plans and consequently are subject to
pro-business and pro-investment reforms as well as receiving substantial investment from the public
and private sectors.
Another grim year for Iran

Iran will continue to suffer from an unstable economy, elevated unemployment, rampant inflation and
simmering national grievances in 2023. The economy will remain hamstrung by US sanctions and stuck
in slow growth mode, despite the persistence of reasonably high oil and gas prices on international
markets. Disillusionment with the political system, years of repression and the deteriorating economic
situation will drive further social unrest in 2023. The current regime led by the president, Ebrahim Raisi,
will face a serious challenge from mass street protests and strike action, but protests will be met by a
harsh response from the security forces, and hardliners are likely to retain the upper hand politically
and control of the state. However, there is a high risk that further mass street protests will morph into a
violent uprising that complicates matters for the ruling elite.
Hopes for a revival of the Joint Comprehensive Plan of Action (JCPOA, the Iran nuclear deal), and
with it a lifting of US sanctions on Iran, are slim to non-existent given disagreement over the terms of the
JCPOA and a deterioration of relations between Iran and administrations in the US and the EU, which
have criticised Iran (and in the case of the EU imposed fresh sanctions) over arms sales to Russia and
human rights abuses linked to the severe clampdown on public protests. Iran will continue to exploit its
ostracism by the West to deepen military and economic ties with China and Russia, in the hope of easing
the impact of existing sanctions and building external relations beyond the reach of the West.
More financial outreach from the GCC

An energy sector-induced economic bounce across the GCC that started in 2021 has helped member
states to restore economic buffers and rebuild their financial war chests. The windfall from strong
global energy demand and high oil and gas prices has enabled the rulers of Saudi Arabia and the UAE,
in particular, to plough funds into national economic development plans and foreign ventures. During
2023 GCC states will continue to invest in the broader Middle East region, and elsewhere, to pursue
their own economic goals and to strengthen regional alliances. The projection of soft power and the
pursuit of hard-nosed financial investment will see billions of US dollars flow from the cash-rich GCC
into strategic economic and geopolitical projects in 2023.

Gulf Co-operation Council: foreign-exchange reserves

(US$ bn)
Saudi Arabia UAE Kuwait Qatar Oman Bahrain
1,000
800
600
400
200
0
2010 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
Source: EIU.
For instance, GCC states and related institutions will take a leading role in providing development
finance through the Arab Co-ordination Group to help to tackle issues such as food security and
climate adaptation—a food security action plan was agreed in mid-2022 with an initial US$10bn
funding package to help lower-income countries foot the bill for food imports. Separately, GCC states
have pledged about US$41bn in official support and investment to countries such as Egypt, Jordan,
Yemen and Pakistan, where there is a need to provide emergency finance to shore up regional alliances,
address economic instability or tackle humanitarian crisis. In addition, GCC states will continue to
pursue strategic investments in foreign assets and ventures to support economic diversification and
global partnerships, while robust non-oil GDP growth in the GCC in 2023 will continue to support
remittance flows to other parts of the Middle East, as well as Africa and Asia.
Geopolitical pivot towards the East

Major players in the Middle have historical security relations and interaction with the US, strong
trading links to Europe and China, and close ties to Russia. These relations will be tested in 2023 as the
global economy slows, the war between Russia and Ukraine rolls on and China continues to rise as an
influential economic and political player in the Middle East. A further pivot towards Asia—albeit in a
measured fashion for those traditionally aligned to the West—is likely to be a key feature of Middle
Eastern foreign policy in 2023.
Saudi Arabia has a long-standing strategic partnership with the US built on the petrodollar system
and US security guarantees, which will continue to play a critical role in underpinning the kingdom’s
foreign policy and defence capabilities in 2023. However, Saudi Arabia will increasingly adhere to a
more independent foreign policy approach than in the past as it seeks to diversify its international
relations—including closer ties with China and Russia. In part this reflects the ongoing shift in Saudi
trade and investment ties towards Asia, especially China, and the success of the OPEC+ alliance—led
by Saudi Arabia and Russia—in shaping global energy market conditions. China attempted to persuade
Saudi Arabia to denominate oil sales between the two countries in renminbi (rather than US dollars
as is the norm under the petrodollar arrangement with the US) and pressure will mount for this type

US arms exports by country, 2021

(US$ m; constant 1990 US$)
Saudi Arabia 1,389
Australia 929
Qatar 906
UK 875
Japan 875
South Korea 646
Netherlands 586
Israel 550
Norway 455
India 425
UAE 274
Denmark 226
Italy 214
Morocco 203
Sweden 138
Taiwan 132
Singapore 106
Source: EIU.
Destination of Saudi exports, 2021

(US$ bn; fob)
About 10% of Saudi goods

exports went to the EU
Only 5% of Saudi goods

exports went to the US
About 50% of Saudi

50+ goods exports (mostly oil)
40 went to China, Japan,
India and South Korea
30
20
10
0
Source: EIU.
of transaction. Saudi Arabia will resist in the short term and maintain its exchange-rate peg to the US
dollar, for fear of unsettling its own economy and relations with the US. The decline of the petrodollar
(and the concomitant rise of the “petro yuan”) is a longer-term risk, rather than a short- or medium-
term one.
Iran already has poor relations with the West and these will deteriorate further 2023, which in turn
will prompt the state to seek even stronger ties with other countries, including Russia, but especially
China and India under its “look East” policy. Iran could obtain full Shanghai Co-operation Organisation
(SCO) membership in 2023, which would facilitate its co-operation with SCO members—including

China and Russia—boost its influence and commercial ties in Central, East and South Asia, and provide
Iran with more wriggle room to withstand sanctions and isolation from the West.
Unresolved conflicts destabilise the region

The decade-long conflict in Syria will remain a highly unstable, multifaceted affair with a myriad of
domestic and international participants—more, rather than less, conflict appears on the horizon in
2023. The Syrian regime led by the president, Bashar al-Assad, and propped up by the Syrian army will
retain control over most of the country. Outside regime-held territories, instability will be driven by
Turkey’s presence in the north and by opposition to the regime from rebel fighters in north-western
Syria. Outbreaks of fighting in northern Syria between Kurdish-aligned groups and Turkish-backed
rebels are likely to become more frequent in 2023. The Syrian regime will strengthen its influence in
the resource-rich Kurdish territories in north-eastern Syria, leveraging the threat of Turkish invasion to
establish a protectoral relationship with the Syrian Democratic Forces (SDF, the main Kurdish fighting
force in north-eastern Syria)—we expect a rapprochement of some kind between the regime and the
SDF by end-2023. Israel will increase the frequency of air and drone strikes on Iranian and Hizbullah
positions inside Syria, especially as negotiations between Iran and the West over reviving the JCPOA
are expected to falter. In addition, Russian preoccupation with its invasion of Ukraine could prove a
destabilising factor, as opposition forces in the north-west, including groups backed by Turkey, sense
that they have an opportunity to take advantage of Russian weakness, whether because of the impact
of sanctions on supply lines to Russian bases or because of military setbacks in Ukraine itself.
The north-south civil war in Yemen will continue and intensify in 2023. Yemen’s warring parties
failed to renew the UN-brokered ceasefire (that began in April 2022) by an October 2nd deadline.
Negotiations to revive the agreement remain ongoing, but major concessions from both sides appear
unlikely, leading to an expected collapse of peace talks and the resumption of heavy fighting in early
2023. Divergent geopolitical ambitions in Yemen’s multifaceted conflict will remain a major barrier to
peace in 2023. Saudi Arabia and the UAE dominate a coalition of mainly Arab countries that oppose the
Houthi rebels, a Shia group with strong positions
in the north of the country. Houthi drone attacks Middle East: risk of social unrest in 2023
targeting Saudi Arabia and the UAE are expected, (0=low; 4=high)
which in turn are likely to mark the resumption of
retaliatory Saudi air strikes on Houthi-held cities, Turkey
such as Sanaa and Hodeida. Meanwhile, Iran will
continue to provide some financial, logistical Lebanon Syria
Israel Iran
and military support to the Houthis as it seeks to Iraq
Palestine
Kuwait
undermine Saudi Arabia’s backing of the Houthis’
Jordan Bahrain
opponents by threatening domestic security in the Qatar
Ägypten
GCC. Saudi
Arabia
The long-running Israeli-Palestinian conflict
Oman
has a new dynamic following the parliamentary 4
2
election held in Israel in November, which was the 1 Yemen UAE
fifth in four years and produced a narrow victory 0
Source: EIU.

in the 120-seat Knesset (parliament) for a right-wing government led by Benjamin Netanyahu, a former
prime minister. The Netanyahu bloc comprises the major centre-right/right-wing Likud party, two
ultra-Orthodox parties and an alliance of extreme right-wing parties. As prime minister Mr Netanyahu
will attempt to restrict far-right policies to the domestic sphere and prevent them from influencing
foreign policy initiatives, but this will be difficult to achieve given the pressures of governing in a
coalition with personal and ideological differences and rivalries. The right-wing-dominated multiparty
coalition will take a hard line on perceived threats to national security, continue Israeli settlement
expansion and offer little to no concessions to the Palestinians, which will contribute to sporadic
military confrontations on the Gazan-Israeli border and intermittent violent clashes elsewhere. This
outcome will limit Israel’s ability to further expand its regional ties, and especially those with Saudi
Arabia and possibly the UAE.
Social tensions prompt protests and civil unrest

More generally, social tensions will remain high and spill over into highly disruptive mass
demonstrations and protests in parts of the Middle East in 2023. Countries at a high risk of social unrest
are Iran, Iraq, Lebanon, Syria and Yemen, where a difficult economic situation is exacerbated by conflict
and years of oppression or economic mismanagement by ruling elites. Feeling threatened, rulers in
some of these countries—especially Iran and Syria—will crack down hard on protesters. Countries at a
moderate risk of social unrest include Egypt, Jordan and Turkey, which again will find social grievances
driven by poor socioeconomic conditions—especially high rates of unemployment and inflation. In
contrast, the risk of social unrest across the GCC and in Israel will remain low, largely as these countries
are well equipped financially and institutionally to help mitigate socioeconomic pressures.

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North America
outlook 2023
Economic headwinds approaching

Contact us

GURGAON DUBAI

India Tel: +971 4 4463 147
NORTH AMERICA OUTLOOK 2023
ECONOMIC HEADWINDS APPROACHING
Economic headwinds approaching

• EIU expects that a combination of stubbornly high inflation, a steep rise in interest rates and
slowdowns elsewhere (most notably Europe and China) will curb US growth in 2023.
• We expect the US economy to experience a mild technical recession in early 2023. We

expect real GDP to flatten year on year, rising by just 0.1%.
• In contrast, the Canadian economy will continue to benefit from high commodity prices,
although aggressive monetary tightening will also take its toll on growth.
• In the US, Republicans’ lacklustre performance in the 2022 mid-terms will kick off a battle
for the 2024 presidential nomination. This competition will make it difficult for Republicans
to present a united front in Congress and to mobilise voters.
• Both US and Canadian foreign policy will re-focus on China in 2023. We do not expect an
easing of North America-China tensions any time soon.
In 2022 the US and Canada faced similar economic challenges amid record high-inflation, Russia’s
invasion of Ukraine and heightened tensions with China. Both countries’ focus shifted rapidly from
coronavirus recovery, to managing economic headwinds stemming from the Ukraine war and
navigating geopolitical uncertainty.
We expect that 2023 will be another year of managing slower growth, tightening monetary policy
and trying to cool international tensions.
Interest rates: how far will the Fed go?

After US inflation spiked to an estimated 8.1% in 2022, a 40-year high, we expect that it will ease
gradually over the course of 2023. In year-on-year terms, both headline and core inflation eased back
from their recent peaks in October, to 7.7% and 6.3%, respectively.
Inflation measures are starting to ease, after core CPI hit a fresh high in September
(US consumer price index, % change year on year)
Core CPI Headline CPI

10
0
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
2021 2022
Sources: US Bureau of Labour Statistics; EIU.

Despite signs that inflation is easing, we expect price growth to remain above normal levels in
2023, as commodity prices remain higher than in recent years and as consumer spending slows only
gradually. As a result, we expect the Fed to raise interest rates to a peak target range of 4.5-4.75%
at the start of February 2023—twice as high as the peak range in the previous tightening cycle—and
to leave them there until mid-2024. There is, however, an increasing risk that the Fed will raise interest
rates above 5%, if inflation does not ease more noticeably in the coming months (as we expect it to)
due to another oil-price spike or stubbornly resistant consumer demand.
US economic growth: is a recession on the cards?

We expect US consumer spending and fixed investment to slump in 2023, largely due to the steep rise
in US interest rates, as well as stubbornly high inflation and slowing growth elsewhere in the world—
including in Europe and China, two key markets for the US. We expect two quarters of GDP contraction
in late 2022 and early 2023, as consumer spending and investment both drop from their high base. The
housing sector—one of the fastest to respond to changes in monetary policy—has already declined
noticeably in recent months, suggesting other sectors will follow. We expect US consumer spending
to be stickier, reflecting pent-up demand left over from the pandemic, strong nominal wage
growth (albeit below inflation) and still-low unemployment. The savings ratio has fallen to just
over 3% in recent months, less than half its pre-pandemic level, as households have dipped into their
savings in order to maintain spending (typically the savings ratio rises as households buckle up for
difficult times).
Personal consumption and exports supported modest GDP rebound in Q3

(contribution to quarterly real GDP growth, percentage points)
Personal consumption Fixed investment Private inventory Net exports Government
12
10
8
6
4
2
0
-2
-4
Q1 Q2 Q3 Q4 Q1 Q2 Q3
2021 2022
Sources: US Bureau of Economic Analysis; EIU.
Canadian economic outlook: slowdown ahead, but a recession is unlikely

In 2023 we believe that Canada’s real GDP growth will be higher than that of its G7 peers, at a forecast
1.3% (compared with -0.1% on average for G7 countries; this average is an arithmetic one). Canada
has benefitted from the spike in global commodity prices, notably for crude oil and wheat, following
Russia’s invasion of Ukraine. Higher commodity prices have fuelled inflation, but price growth has now

started to come down from its high of 7.9% year on year in June. We believe that inflation will continue
to fall in the coming months as global commodity prices decrease (albeit from a very high base),
international transport costs fall and monetary tightening by the Bank of Canada (BoC, the central
bank) starts to take effect.
Counterbalancing these positive trends, headwinds will weigh on the economy, including domestic
and global monetary tightening, as well as the sharp economic slowdown in the US. There will also be
other economic ripple effects from the war in Ukraine, such as an impending economic recession in
Europe–which will also weigh on global growth. Labour shortages will also remain an issue. Despite
government plans to bring in 1.5m immigrants by 2025, some sectors (like health care, manufacturing
and construction) will face acute shortages.
Worker shortages in Canada remain despite proactive federal immigration policy

(’000s)
Net immigrant arrivals Job vacancies
150 1,200
125 1,000
100 800
75 600
50 400
25 200
0 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2019 20 21 22
Sources: Statistics Canada; EIU.
US domestic politics: the 2024 US election season has begun

The November 8th US mid-term elections have resulted in a divided Congress, with a Democrat-
controlled Senate (the upper house) and a Republican-controlled House of Representative (the lower
house)–in line with our forecasts. This will set the country up for some bruising policy battles in 2023-
24, particularly over the budget and the debt ceiling.
However, the biggest battle is now likely to take place within the Republican Party, as
conservatives recover from their disappointing mid-terms performance and prepare for the 2024
presidential elections. The former president, Donald Trump, has already announced his candidacy
for the 2024 election, as we expected, but will run with a greatly diminished profile. Mr Trump was
very active in the mid-terms, endorsing more than 300 candidates, with mediocre results; not a single
candidate from the far-right America First coalition—an unofficial slate of extreme-right candidates
who deny the results of the 2020 election—won a race to serve as a key election official (governor,
secretary of state or attorney general) in battleground states.

A weakened Donald Trump remains the Republican primary favourite

(% respondents who support the following if the Republican presidential primary were today)
Donald Trump Ron DeSantis Non-Trump/DeSantis
100
80
60
40
20
0
Jan Mar Jun Jul Aug Sep Oct Nov
2022
Sources: Morning Consult; EIU. *Latest survey conducted November 10th-14th 2022.
This creates an opening for potential challengers, particularly Ron DeSantis, who was
re-elected as governor of Florida by a landslide (without seeking Mr Trump’s endorsement).
However, Mr Trump remains popular with much of the party’s grassroots, and we do not expect him
to step back from the political scene without a fight. The battle for the nomination is likely to divide
congressional Republicans in the coming years; this will hinder their ability to put forward legislation,
particularly as their extremely narrow majority in the House of Representatives (which drives the
government’s spending and taxation agenda) will make co-operation crucial. A long battle for the
Republican presidential nomination also risks dividing the party ahead of the next election.
Foreign policy: all eyes (still) on Russia and China

We expect the US and Canada to remain focused on containing Russian aggression in Europe
in 2023, as the war in Ukraine has revived tensions with Russia and strengthened North America’s
security ties with its traditional allies in Europe and NATO. We expect the US and Canada will maintain
financial and military support for Ukraine in 2023, although the amount of this support by the US will
depend on budget battles in a divided Congress.
Besides Russia, we do not expect Canada or the US’s relations with China to improve
in 2023. While the US aims to “contain” Russia in the near-term, the US national security strategy
published in October highlights that the administration’s longer-term focus is to “out-compete” China.
Economic tensions, which had simmered for much of the term of the US president, Joe Biden, thus
far, escalated significantly in October when the administration introduced sweeping export controls
on US semiconductor manufacturing technology—a significant setback for China’s technological and
military plans.
Mr Biden has recently signalled his willingness to put a “floor” under the US-China relationship
and to work with China on shared priorities, including the climate crisis. However, the conflict
will remain entrenched, and we expect the US administration to draw its red lines more

clearly–particularly over its support for Taiwan and its efforts to out-compete China in the
semiconductor industry–which will prevent any improvement in relations. Similarly, we
expect Canada-China tensions to deepen in 2023, as Canada seeks to diversify its trade
relationships and maintains claims that China attempted to interfere in its 2019 elections
(which China denies).

What’s included?


Copyright


A new horizon for
Africa-China relations
Why co-operation will be essential

We specialise in:
Contact us

20 Cabot Square, London E14 4QW, 750 Third Ave, 5th Floor, 1301 Cityplaza Four 12 Taikoo Wan Road Taikoo
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Tel: +44 (0)20 7576 8000 Tel: +1 212 541 0500 Tel: + 852 2585 3888
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GURGAON DUBAI

India Tel: +971 4 4463 147
A NEW HORIZON FOR AFRICA-CHINA RELATIONS
WHY CO-OPERATION WILL BE ESSENTIAL
Inhalt
A new horizon for Africa-China relations 2
Stimulators of African-Chinese commercial engagement 3
Responding to the competition 3
Maintaining a non-interventionist stance 4
Trade growth is a key priority 5
Evolving nature of Chinese finance 6
Addressing the debt pile 7
China’s slowdown impacts Africa 8

A new horizon for Africa-China relations
• Africa-China relations are moving into a new phase. The latest policy initiatives,
development strategies and financial pledges point to a deeper and broader engagement
between Africa and China in the medium to long term.
• Major international powers—especially the EU and the US—are actively implementing

foreign policy that seeks to reshape their own economic and political relations with Africa,
which to an extent will help to counter, but not dislodge, Chinese influence across the
continent.
• Substantially boosting and diversifying bilateral trade flows is a major policy objective—
China is aiming to surpass the EU’s total trade with Africa by 2030—but an expected
slowdown in Chinese demand during 2022-26, especially in construction, a sector that is
dependent on intensive use of natural resources, will make this difficult to achieve.
• We expect Chinese official investment to continue to target Africa’s natural resources,

together with trade-facilitating transport and power infrastructure. Private-sector trade
and investment will also have a pivotal role in the decade ahead, targeting sectors such as
information and communications technology (ICT) infrastructure and services, agricultural
ventures, consumer goods and electronics, light manufacturing and finance.
In November 2021 the Eighth Ministerial Conference of the Forum on China-Africa Co-operation
(FOCAC 8) took place in Dakar, the capital of Senegal. Historically, the core messages emerging
from the FOCAC have provided a clear indication of the future direction of travel of Chinese-African
relations, and the latest edition was no exception. FOCAC 8 resulted in the adoption of the Dakar
Action Plan (2022-24), the Chinese-African Declaration on Climate Change, the 2035 Vision for China-
Africa Co-operation, and the Declaration of the Eighth Ministerial Conference of FOCAC. These
documents suggest that China intends to expand its engagement with Africa over the coming decade
through increasingly diversified trade; additional investment in target sectors and trade-facilitating
infrastructure; projects that address Africa’s environmental, social and governance issues; and a more
hands-on and interventionist approach to regional diplomacy. Officials from China talk of building a
more prosperous shared future for the country and Africa, although economic and geostrategic self-
interest will continue to underpin China’s public- and private-sector engagement with the continent.
The 2035 Vision for China-Africa Co-operation, the first mid- to long-term strategic plan to emerge
from the FOCAC fora, sets out eight general areas for future engagement between China and its
counterparts in Africa: mutually beneficial trade, investment and financing; industrial co-operation;
green economy and climate change; healthcare provision; people-to-people exchanges; peace
and security; co-operation on global governance; and partnerships in development agenda. These
general themes suggest a more balanced approach to Chinese engagement in Africa during the
decade ahead, as well as Chinese engagement that seeks to better address the sensitivities and future
concerns of African partners. This may be the case to a certain extent, but only insofar as these areas

of engagement align with China’s own national development priorities and geopolitical aims, and the
strategic outreach of its private sector.
Stimulators of African-Chinese commercial engagement

There are a range of broad drivers that are likely to push more Chinese trade and investment towards
Africa in the decade ahead. These include intense international competition for Africa’s extractive
sector and agricultural resources. Chinese official investment—largely through loans and grants and
channelled through state-owned enterprises and state-backed financial institutions—will continue to
target Africa’s natural resources, as well as trade-facilitating transport and power infrastructure. These
are strategically important areas, given China’s current and future demand for resources, and could
result in further investment to scale up African supply chains of raw and processed energy, minerals,
metals and agricultural products. Food security issues and enormous food import requirements in
China could drive large trade and investment flows in African agricultural products and production, as
well as environmental management systems and climate change mitigation strategies.
Africa has an enormous, young and low-cost pool of labour that presents a potential outlet for
China’s labour-intensive manufacturing sector—something that will become increasingly attractive as
China’s labour force grows older and becomes more costly. African-located manufacturing ventures
will increasingly serve as an export base for industries that connect with Chinese value chains and
target Chinese markets, as well as a launch pad for goods targeting markets in Europe and North
America. In addition, Africa has potentially fast-growing markets for a wide range of consumer goods
and services, which in the long term will be driven by an expanding urban middle class and further
progress on regional integration.
The influence of these factors will be shaped by China’s refocus on its overarching “dual circulation”
model of development, which seeks to build domestic production capabilities and consumption
(internal circulation), and at the same time stay engaged with the international market and global
supply chains (international circulation). China aims to become self-reliant as much as possible in
terms of essential inputs to production—especially high-end technology—and will attempt to minimise
logistics bottlenecks by building more secure supply chains for essential materials from closely aligned
trade partners. China is also actively seeking to build overseas markets as an outlet for its export
industries and as a business opportunity for its foreign investment community. China’s Belt and Road
Initiative (which extends into Africa), though quietly deprioritised in the wake of the covid-19 pandemic
and worsening regional sovereign credit risks, continues to provide crucial support to this dual strategy
and could create commercial opportunities for business ventures based in Africa that link into China-
centric value chains. Renewed interest could also come from the emerging Global Development
Initiative, a new scheme proposed by China’s president, Xi Jinping, at the UN General Assembly in
September 2021.
Responding to the competition

China will attempt to keep ahead of other major powers, particularly the EU and US, both of which are
taking a more active interest in Africa and seeking to reshape their own interaction with the continent.
The EU and the African Union (AU) held a summit in February to help reset relations and set the
foundation to make the EU “Africa’s partner of choice” over the next two decades. The EU-AU Summit

China-Africa (Vision 2035) focus areas EU post-Cotonou Agreement priority areas

Partnerships in Democracy and
the development human rights
agenda
C0-operation Mutually beneficial Sustainable
on global trade, investment Migration and economic growth
governance and financing mobility and development
Creating a... Creating...
Peace and “Shared future Industrial “Africa’s partner
security in new era” co-operation of choice”
Peace and Climate
People-to-people Green economy security change
exchanges and climate
change
Healthcare Human and social
provision development
Source: EIU.
set out plans for the Global Gateway Africa–Europe Investment Package worth €150bn, with the core
aims of accelerating the green and digital transition in Africa, boosting sustainable growth and decent
job creation across the continent, strengthening the African health system, and improving education
and training on the continent. The EU is also hopeful of ratifying a new partnership agreement with
Africa in 2022—a post-Cotonou Agreement— to set a framework for political, economic, sectoral and
social co-operation between the EU and Africa over the next 20 years.
The US is re-engaging with Africa through initiatives such as the Build Back Better World (B3W)
initiative that focuses more on “soft” projects in areas like climate, education, health and security, rather
than “hard” infrastructure of airports, seaports, roads, railways and dams. Looking to forward their own
foreign-policy agendas, other players such the UK, Brazil, Russia, India, South Korea, Japan, Turkey
and the Gulf States (especially Saudi Arabia and the UAE) have intensified the scramble for access to
African resources, future markets and production sites, and political support.
Competition between international powers for influence and access to Africa should help to
strengthen the negotiating position of African states—on a unilateral basis or through collective
bodies such as the African Union or regional economic blocs. For its part, China is pushing the line
that it is well placed to fulfil the core requirements that African leaders have expressed individually
and collectively for active support in developing pan-African and regional connectivity projects, a
long-term partnership mindset rather than a donor-recipient arrangement, and, crucially, the ability
and willingness to follow through on pledges and deliver on commitments. Question marks are also
being raised in Africa over the motives behind the re-engagement of the EU and US, which for some
African states raise memories of past failed commitments and are viewed merely as a desire to counter
Chinese influence rather than work with African business partners.
Maintaining a non-interventionist stance

In January China’s foreign minister, Wang Yi, visited Eritrea, Kenya and Comoros, continuing a three-
decade-long tradition of Chinese foreign ministers opening the diplomatic year with a trip to Africa.
During the trip he announced the creation of a new role of special envoy for the Horn of Africa—
subsequently filled by an experienced foreign ambassador, Xue Bing—with a wide-ranging official
remit to help secure lasting stability, peace and prosperity in the subregion. China followed up this

appointment by co-hosting a Horn of Africa peace conference in Addis Ababa, the capital of Ethiopia,
in June. These steps highlight China’s interest in deepening its engagement with the subregion, albeit
without a fundamental shift in Chinese foreign policy away from its long-standing principle of “non-
interference” in the affairs of overseas countries.
China’s policymakers are cautious of being Internally displaced people in the Horn
drawn diplomatically and militarily into far-flung of Africa
(m; end-2021)
conflict zones, especially given concerns around
heightened geopolitical tensions closer to home. Sudan
(3.2) Eritrea
We do not foresee China’s recently proposed (0.0)
Global Security Initiative (which emerged at South Sudan

(1.4) Ethiopia
about the same time as the aforementioned, (3.6)
similarly named Global Development Initiative),
Kenya Somalia
to substantially change the picture. The trajectory Democratic (3.0)
(0.2)
Republic
of China-Africa ties will remain more focused of Congo
(5.3) Uganda
on deepening still relatively shallow trade (0.0)
and investment links, rather than more active 5.3 0.0
diplomatic mediation or more formal security

1,000 km
Sources: Internal Displacement Monitoring Centre; EIU.
arrangements.
Trade growth is a key priority

African states and the Chinese government have lofty ambitions to push the level of their bilateral
trade much higher and diversify trade further in the years ahead. China is actively seeking ways to
consolidate its position as the largest single country trader with the continent in the medium and long
term. In the short-term China pledged at the FOCAC 8 meeting to buy a total of US$300bn worth
of products from Africa in 2022-24. This would maintain the record level of African exports to China
achieved in 2021, but in an environment of lower commodity prices—we expect energy and industrial
raw material prices to ease during 2023-26 compared with their 2021 level—which entails a sizable
African trade with China Major importers from China

(merchandise goods; US$ bn) (US$ bn and % of total African imports from China; 2021)
Imports from China Exports to China 0 20 40 60 80
300 Nigeria 16%
South Africa 14%
Egypt 12%
250 5%
Ghana
Kenya 5%
200 Other 48%
150 Major exporters to China

(US$ bn and % of total African exports to China; 2021)
100 0 10 20 30 40
South Africa 31%
Angola 20%
50
DRC 11%
Congo-Brazzaville 5%
0 Zambia 4%
2000 05 10 15 20 21 Other 29%
Sources: UN Comtrade (2000-15); China's General Administration of Customs (2016-21); EIU.

expansion of non-extractive sector trade. This will be a tall challenge made even more difficult by the
expected slowdown in Chinese demand in 2022-26, especially in construction, a sector dependent on
intensive use of natural resources.
quantities of essential pandemic goods—including

Bilateral trade
pharmaceuticals, chemicals, personal protective
equipment, face masks, hazmat suits and digital
Bilateral trade in goods between Africa and
hardware—from China in 2021, but traders were
China rose to a record high of US$254bn in 2021—
also able to take advantage of resilient demand
up by 35% compared with 2020—according to
in Africa for consumer goods and the need for
data released by China’s General Administration
more intermediate or industrial products. African
of Customs. African imports from China
exports to China hit a record US$106bn in 2021,
reached US$148bn in 2021, the highest level
driven largely by strong demand and high prices for
recorded since 2015 and an increase of US$33bn,
energy, mining and agricultural commodities.
or 29%, compared with 2020. Africa bought vast
Evolving nature of Chinese finance

China’s lending to Africa over the past two decades has largely targeted transport, power and mining
projects and largely involved policy banks—including the Export-Import Bank of China and China
Development Bank. However, official lending at low rates has tailed off in recent years and commercial
bank lending has taken on a more visible role in funding African projects. In addition, target sectors
are widening as China provides less official funding for major transport projects and commercial
enterprises increasingly target other sectors such as ICT infrastructure and services, agricultural
ventures, manufacturing, and finance among others. This transition in project finance and project type
is expected to continue as Chinese commercial interests explore new avenues of co-operation on the
continent.
China made smaller short-term financial commitments at FOCAC 8 compared with FOCAC 6 and
7, held in 2015 and 2018 respectively, which reflects some belt tightening and greater risk aversion in
China, owing to the adverse effects of the covid-19 pandemic. China made new financial pledges at
FOCAC 8 amounting to US$40bn, a large drop from the US$60bn of finance pledged in 2018, and
FOCAC’s financial pledges

(US$ bn)
2018 2021
Credit lines 20 10
Grants & interest-free loans 15 -
Chinese foreign direct investment 10 10
Development financing 10 -
Financing African trade 5 10
IMF special drawing rights - 10
Source: EIU.

there is a risk that this reduced figure may not actually materialise, owing to an expected economic
slowdown in China, a shrinking current-account surplus and further financial belt tightening.
The FOCAC 8 financial pledges for the next three years include about US$10bn worth of credit lines
available to African financial institutions (rather than African governments to fund Chinese projects,
as has been the case previously), at least US$10bn of foreign direct investment (FDI), about US$10bn
in trade finance for African partners and the reallocation to Africa of US$10bn of special drawing rights
held with the IMF (25% of the Chinese total).
Separately, China has pledged to accumulate US$60bn of additional direct investment from Chinese
firms in Africa by 2035, which appears challenging but achievable, given recent FDI trends and the
expectation that the Chinese private sector will become even more invested in African ventures.
Moreover, at FOCAC 8 China pledged at least US$10bn to be accumulated over three years, equalling a
pledge that it made at FOCAC 7 (and subsequently realised).
Addressing the debt pile

Africa has a higher debt burden than ever before, partly because of China’s free and easy lending
regime, which has been accompanied by little real effort to build accountability and transparency in the
use of funds. China’s enormous amounts of lending to Africa have promoted accusations among some
countries—mainly from India and the West—of China employing “debt-trap” diplomacy, whereby
poorer states are flooded with unsustainable debt, ultimately forcing them to surrender strategic
assets or conceding significant political leverage. Chinese loan commitments in the region of US$160bn
from 2000 through to 2020—according to the China Loans to Africa Database, managed by the Boston
University Global Development Policy Centre—along with numerous Chinese backed infrastructure
projects in Africa and the promise of more to come have helped China to secure access to Africa’s
natural resources and provided a foothold for Chinese firms operating in Africa.
Repayment issues have emerged in countries such as Ethiopia, Kenya, Uganda and Zambia, but
there is little real evidence to date that active Chinese “debt-trap” diplomacy is in play across the region.
However, Chinese loans have undoubtedly helped to build political influence on the continent, and
Chinese finance directed towards Africa Chinese loans to Africa

(US$ bn) (2000-20)
Loan commitments* Transport
Foreign direct investment 15 Power
30 32 Mining
3
4 47 ICT
25
7 Water
20 Industry &
7 multi-sector
US$159bn
15 Defence
14 Banking
10 Health &
education
5 18 41 Agriculture &
food
0 Other
2000 05 10 15 20
*Chinese policy and commercial banks, government entities, companies and other financiers.
Sources: China Africa Research Initiative, Johns Hopkins University’s School of Advanced International Studies; EIU.

there is some pressure from China on its African partners to provide support for its foreign policy
interests. This will continue to be the case as China seeks to build its international status and sphere of
influence in Africa and shore up its access to the region’s natural resources, although attempts by the
EU and US to play catch-up could counter Chinese influence and rebalance international relations.
China is wary of its financial exposure in Africa and reputational or repayment issues surrounding
some of its lending. The covid-19 pandemic has exacerbated Africa’s external debt repayment issues
and prompted a response from the international community and major bilateral lenders, including
China. Wary of the need to address emerging external debt issues in Africa, China has reluctantly
participated in the G20 Debt Service Suspension Initiative (DSSI) and pursued a case-by-case approach
to debt restructuring and relief for African states. China is reported to have provided debt relief to 16
African states under the G20 DSSI, which includes Angola, Kenya, Mauritania and Zambia, while China
also claims to have cancelled interest-free loans for around 15 African states, including Botswana,
Burundi, Rwanda, Cameroon, Republic of Congo and Mozambique. Loan restructuring is nothing new
for Chinese lenders, and new initiatives that protect Chinese commercial interests are likely in the years
ahead.
China’s slowdown impacts Africa

The Chinese economy is slowing, and this will directly impact Africa in the short to medium term.
China’s zero-covid policy will continue to disrupt economic activity well into 2023, especially household
spending and private business activity. China will miss its annual growth target of 5.5% for 2022; instead,
we expect real GDP growth to fall from 8.1% in 2021 to just 4% in 2022, followed by a modest uptick to
5.5% in 2023. From 2023 economic policy in China will return to the themes of “common prosperity”,
“carbon neutrality” and “dual circulation”, many of which have been on pause, owing to the precarious
economic fundamentals. We expect the Chinese economy to grow between 4% and 5% in 2024-26, a
much slower pace of growth than the average of the past two decades.
China’s economic slowdown and rebalancing in the short to medium term will lead to weaker
import demand and most likely softer prices, while some Chinese foreign capital outflows could
become harder to secure owing to financing constraints and greater risk aversion. The most exposed
countries in Africa are commodity exporters, specifically those that provide supplies for the Chinese
metal- and power-intensive construction sector, especially South Africa, the Democratic Republic of
Congo, Zambia, Mauritania and Namibia. However, policy announcements suggest that China is in for
the long-haul, and strong trade and investment ties will remain a key foreign policy priority. Equally,
economic need and market forces will continue to drive Chinese commercial interests towards Africa.

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Copyright


Industry outlook 2023
Challenges, opportunities and trends
to watch in seven sectors

We specialise in:
Contact us

GURGAON DUBAI

India Tel: +971 4 4463 147
INDUSTRY OUTLOOK 2023
CHALLENGES, OPPORTUNITIES AND TRENDS TO WATCH IN SEVEN SECTORS
Inhalt
Industry outlook 2023 2

Challenges, opportunities and trends to watch in seven sectors
Automotive outlook 2023 5

Bright spots amid stalling growth
Consumer goods and retail outlook 2023 10

Retailers respond to pricing pressures
Energy outlook 2023 14

Surviving the energy crisis
Finance outlook 2023 18

A new test for financial stability
Healthcare outlook 2023 21

The aftermath of the pandemic
Technology and telecoms outlook 2023 25

The battle for digital supremacy
Regulations, risks and geopolitical rifts
Tourism outlook 2023 29

Turbulence in the travel industry

Industry outlook 2023

Challenges, opportunities and trends to watch in seven
sectors
The continuing pandemic, the war in Ukraine and high inflation have forced many companies to scale
back their forecasts for this year. So will 2023 be any better?
• The war in Ukraine, combined with lockdowns in China, has exacerbated supply-chain disruptions
and pushed up global inflation, forcing EIU to downgrade its forecasts for economic growth in 2023.
• Many governments, particularly in Europe, will be forced to scale back investment in public services,
including healthcare, in order to protect households and businesses from the effects of higher
prices.
• While some businesses (particularly in commodities sectors) will benefit from high prices, many will
be hit by weak demand and high input costs, particularly for energy.
• Profitability will be squeezed, while corporate investment will slow amid rising interest rates.
• However, some companies (notably in pharmaceuticals, technology and retailing) will take
advantage of lower stock-market valuations, bankruptcies and government incentives to snap up
strategic assets and position themselves for an eventual upturn.
Ever since the pandemic caused an unexpected slump in the global economy, companies have
been waiting for the recovery. It has come, but it has been far from straightforward. In 2023, several
industries—including automotive and tourism—will still not have recovered to 2019 levels. In others—
including retailing and healthcare—spending growth will be robust in value terms, propelled by higher
prices, but will be low or even negative in real terms. Meanwhile, industries such as energy and financial
services face geopolitical risks that were barely
conceivable a year ago.
China will set the pace on growth
The main reason for this disruption is Russia’s (% change in real GDP*)
invasion of Ukraine in February 2022, and the US Japan Euro area China World
sanctions that the US, the EU and their allies have
2.3 -3.6 5.7 2.6 1.7
imposed in response. Combined with China’s strict 10
zero-covid policies, these have had a deleterious 8

6
effect on global trade and energy flows, pushing
4
up commodity prices and fuelling high inflation.
2
As a result, EIU has downgraded its economic
0
forecasts sharply for both 2022 and 2023 over the -2
past few months (see box). -4
This report looks at the impact that slower -6
economic growth and high inflation will have -8
2019 20 21 22 23
on seven global industries. We also offer some
Source: EIU. *2022 and 2023 are forecasts.
industry-specific predictions for 2023.
• In the automotive sector, demand for electric vehicles (EVs) will continue to be the only bright spot
in a gloomy year. We expect EV sales to rise by 25% to 10.7m units—more than five times their pre-
pandemic level—while sales of fossil-fuel cars and commercial vehicles will fall. Even EV makers will
encounter challenges from supply-chain disruption as well as a lack of charging infrastructure.
• For consumer goods and retailing, we expect inflation to push up global retail sales by nearly 5%
in US-dollar terms, but the lower volume of sales and surging costs will weaken retailers’ profits.
Real-world retailers will turn to automation to try to reduce labour costs. Growth in online sales,
although slower than in recent years, will remain in double digits. Global luxury brands, meanwhile,
will suffer from China’s slowdown.
• Energy consumption will see its second year of sluggish growth, rising by just 1.3% as the global
economy slows. Lower gas supplies and more extreme weather events will force many countries
to fall back on fossil fuels, including coal, delaying the energy transition. Even so, renewable energy
consumption will surge by about 11%, with Asia leading the way.
• In the financial services sector, weakening economic output and rising interest rates will lead to
more difficult conditions for banks, insurers and fund managers in 2023. However, new financial
challengers, including fintech and cryptocurrency sellers, are likely to find the going even tougher, as
their investors insist they start looking for profits.
• Healthcare spending will fall in real terms given high inflation and slow economic growth, forcing
hard decisions on how to provide care. The use of health data will come under stricter regulation.
The pharmaceutical sector will face challenges, as price cuts, higher supply costs and patent expiries
lead to narrower margins.
• The technology sector will not be immune to economic headwinds, with profits falling. Companies
will focus on investment in the metaverse, as well as the drive to standardisation and the battle with
regulators. Asian telecoms companies will continue to look for consolidation in 2023; markets such
as Sri Lanka, Japan and India are the most likely to see deals.
• Global tourism arrivals will rise by 30% in 2023, following 60% growth in 2022, but will still not return
to pre-pandemic levels. The economic downturn, sanctions on Russia and, above all, China’s zero-
covid strategy will be among the factors weighing on the industry. Even so, we expect airlines to
return to profitability.
Amid all this gloom, there will be areas of opportunity. The EV market, online retail sales and tourism
will continue to deliver strong growth, particularly in Asia and the Middle East. Innovations—from the
metaverse to automated vehicles and data analytics (notably in healthcare)—will attract investment,
with some companies also seizing on chances offered by volatile financial markets. It will not be an easy
year, but it could be a transformative one.

However, price pressures will be uneven, with

Macroeconomic conditions
the strongest upward impetus in Europe and
North America, and less force in Asia, particularly
The global economy is set to slow sharply in
in its largest economies. As a result, we foresee a
2023 after two years of rebound from covid-19-
continuation of monetary tightening in the west
related recessions. With the EU, Chinese and US
through hikes in policy interest rates and the
economies all decelerating markedly, we forecast
unwinding of central bank balance sheets (known
that global real GDP growth will rise by just 1.6%
in the trade as quantitative tightening).
in 2023, down from 2.8% in 2022 and 5.7% in 2021.
By contrast, China and Japan will continue to
Despite the gloomy outlook, global consumer
pursue accommodative policies amid economic
price inflation is likely to remain high, at a forecast
softening. Separately, several G20 economies—
6.3% in 2023 (down from 9.4% in 2022), as a result
notably Argentina and Turkey—will continue to see
of much higher prices for most energy and food
very high inflation rates.
commodities in the wake of Russia’s war in Ukraine.

AUTOMOTIVE OUTLOOK 2023
BRIGHT SPOTS AMID STALLING GROWTH
Automotive outlook 2023

Key forecasts
• The automotive industry will remain vulnerable to global headwinds in 2023 including the energy
crisis, slower global demand and continued supply-chain problems.
• Global new-vehicles sales will remain flat in 2023: new-car sales will rise by 0.9% and new
commercial vehicle (CV) sales will fall by 1.3%.
• Sales of electric vehicles (EVs) will be the only bright spot, growing by 25%, but governments will
restructure their incentive schemes.
• Governments’ focus will turn to charging networks, which are inadequate to meet the expanding
EV fleet.
• Autonomous vehicles will take a leap forward, as UN regulators lift their speed limit.
Automotive sales will remain muted
New-vehicle sales will stall in 2023, especially in Europe and the US. We expect global new-car sales
to rise by just 0.9% globally, held back by squeezed consumer spending, high commodity prices and
production shutdowns caused by supply-chain disruptions. New-car sales in western Europe will
decline by about 3%, while they will fall by 2.4% in North America. Meanwhile, new CV sales will fall
by 1.3% globally, amid an expected recession in the Euro zone and slower GDP growth in the US and
China.
Overall, this means that, following a decline in 2022, new-vehicle sales will rise only marginally in
2023, led by growth in Asia, the Middle East, Africa and Latin America. As a result, global new-vehicle
Automotive sales in the slow lane

(new-vehicle sales by region; m units)
Passenger cars Commercial vehicles

80 North America Western Europe Eastern Europe
Asia & Australasia Latin America Middle East & Africa
30
60
25
20
40
15
20 10
0 0
2019 20 21 22 23 2019 20 21 22 23
Sources: national sources; EIU. *2022 and 2023 are forecasts.

sales in 2023, at 79m, will still fall short of pre-pandemic levels of 88m units. Our forecast will remain
vulnerable to considerable risks, including an escalation of the Russia-Ukraine war, possible energy
shortages in Europe and a chance that the global economy may slip into recession.
Incentives for electric vehicles will be restructured

Sales of EVs will be the only bright spot in 2023, growing by 25% year on year to 10.8m units.
Governments are getting innovative with their EV incentive policies, in order to encourage clean-
vehicle sales without too much cost and without benefiting high-income households. The US will offer
a US$7,500 EV tax credit at the point of sale on clean-vehicle purchases from January 1st 2023, but only
if the cars meet stringent eligibility criteria, including final assembly within North America. The US will
also remove a 200,000 vehicle cap per manufacturer, allowing Tesla, General Motors, and Toyota (which
manufactures locally) to benefit from the subsidies. The plan aims to encourage investment in local
production and limit government expenditure.
Meanwhile, China has extended tax breaks and Electric vehicle sales continue to soar
purchase subsidies available for buyers of new (sales of new plug-in EVs)
energy vehicles (NEVs) until the end of 2023. These Units (m) Growth (%)
12 120
breaks include exemptions from purchase taxes,
annual vehicle taxes and consumption taxes. The 10 100
French government is working on a subsidised EV-
8 80
leasing plan, in a bid to make EVs more affordable
for low-income households. However, from 2023 6 60
Germany will reduce EV incentives available for
4 40
battery EVs (depending on the price range) and will
remove subsidies for plug-in hybrid EVs. Norway 2 20
will also phase out tax breaks for expensive EVs
0 0
from the start of January 2023. 2019 20 21 22 23
Battery swapping and charging stations will expand, especially in China

The exponential growth in EV sales has led to problems with recharging networks, which governments
will need to address in 2023. In China, for example, the number of EVs on the road is set to double to
nearly 20m by 2024, but long queues at charging points are becoming common. As part of its 14th Five-
Year Plan (covering 2021-25), the Chinese government aims to deploy charging stations on all highways
connecting provinces by the end of 2023.
Automakers are also investing in recharging solutions, including battery swapping. Nio, an EV start-
up, is planning to upgrade its proprietary battery swap stations in 2023, enabling them to store more
batteries to suit different vehicle brands and voltages. It remains unclear if Nio’s stations will swap
batteries for non-Nio cars as well. India is also planning to implement a battery swapping policy in
the 2022/23 fiscal year (April-March), as part of its aim to electrify all new vehicles by 2030. The Indian
government will also offer financial incentives to companies setting up swapping stations, as well as
encouraging battery leasing.
Despite these incentives, charging will be a challenge in 2023. One problem is that regulators have
yet to put in place uniform battery standards, which would make it easier to find appropriate charging
points and swapping stations. End-of-life battery recycling is lagging too.
Automotive supply chains will remain a weak link

Although a slowdown in demand has made supply-chain blockages less acute, they will continue to
hold back production in 2023. Semiconductors will remain in short supply, with new capacity not due to
come into operation until 2024. Escalating tensions between Taiwan and China will pose another risk.
Automakers will also face challenges in acquiring metals such as nickel, cobalt, steel and aluminium. A
shortage of these metals will make it harder to assemble EV batteries. Even the supply of lithium, a vital
battery metal, could be affected by zero-covid policies in China, the world’s largest lithium refiner.
In order to cope with this challenge, governments are increasing local sourcing. The US will use the
CHIPS Act, passed in 2022, to spur domestic semiconductor production and research. The US has also
published a critical mining strategy to increase its local supply of rare earths and other minerals,thus
reducing its reliance on China. Rare earths are vital to battery production. Meanwhile, India is seeking
to change laws to allow private miners to extract lithium domestically, as well as seeking to acquire
lithium and cobalt mines overseas.
Europe’s biggest supply challenge will be the energy crisis. Some vehicle and parts makers are having
to cut production to reduce energy costs. They may also have to prepare for power cuts. Given close-
knit supply chains, this will have knock-on effects throughout the automotive sector.
Level 3 self-driving cars will hit the roads

The autonomous vehicle segment will take a leap in 2023, as level 3 cars hit the roads and level 4
vehicles undergo tests. Mercedes-Benz (Germany) will start offering its level 3 driving system, Drive
Pilot, in California and Nevada in the US in 2023. BMW’s long-awaited level 3 technology should be
on sale in its Series 7 sedan. Three US carmakers—Tesla, General Motors and Lucid—as well as South
Korea’s Hyundai and Kia, and Sweden’s Polestar, are also expected to launch level 3 vehicles in 2023.
With level 5 representing full autonomy, the jump to level 3 is a significant step. It will take cars from
what is effectively driver-assisted technology (such as Tesla’s Autopilot) to autonomy that does not
require full-time driver attention.These developments will come as UN regulations are amended to
extend the speed limit for level 3 vehicles from 60km/h to 130km/h from the beginning of 2023.
As for level 4, Germany is planning to start an autonomous driving project in 2023 using vehicles
manufactured by two EV makers: Mobileye (Israel) and Nio (China). The expansion of level 4 robotaxis
will also pick up pace in 2023. Motional (US) will launch robotaxis in the US, while Cruise (US) will
expand its offering in Dubai, UAE. Tesla is also expected to unveil its own robotaxi in 2023. Even so,
these level 4 cars will only operate in carefully controlled zones, with operators on standby to cope with
emergencies. Full autonomy remains some way off.

Vehicle autonomy reaches the tiping point

(levels of driving automation)
Automation The system The driver Existing examples
Automatic emergency
Provides momentary Must steer, brake and
Level 0 None braking; lane departure or
driving assistance accelerate
forward collision warnings
Provides continuous
Must be fully engaged
Driver
Driver assistance with either Adaptive cruise control;
Level 1 None in driving; steer or
support
support acceleration/braking lane departure assistance
brake
features
features OR steering
Provides continuous
Must be engaged with Highway pilot; several
assistance with both
Level 2 Partial driving; continually Level 2 models sold
acceleration/braking
monitor the vehicle commercially
AND steering
Handles all aspects of Must be ready to drive Honda Legend Sedan;

Level 3 Conditional
Automated driving when engaged as needed Mercedes Drive Pilot
driving
Drives under limited Is not needed in
Level 4 features High Not yet available
service areas designated areas
Level 5 Full Drives universally Is not needed Not yet available

Sources: SAE International; National Highway Traffic Safety Administration; EIU.
To watch
Union blues: Amid high inflation and a possible recession, the Detroit Three automakers—General
Motors, Ford and Stellantis North America (formerly Fiat Chrysler Automobiles)—will need to
negotiate a four-year contract for 150,000 blue-collar workers represented by United Auto Workers
(UAW), a trade union. This will not be easy at a time when US workers are restive about the cost
of living. General Motors will be hoping to avoid a strike similar to the one in 2019 that cost it about
US$3bn in lost earnings.
Agency models: Premium German carmaker Mercedes Benz plans to move away from franchise-
operated dealerships and introduce an agency model in its home market and the UK. The move will
turn its dealers into agents, who will offer a physical touchpoint for motorists. This will also allow the
carmaker to become the retailer and to enter into sales contracts with customers, giving it direct access
to data on consumer preferences and driving habits. The carmaker will also gain more control over the
final retail price, as well as flexibility to bundle online sales and physical sales.
Battery tech: QuantumScape, a US-based EV battery maker and supplier of solid-state batteries to
Volkswagen (Germany), will start testing 24-layer battery cells in 2023 - instead of the 16-layer cells
currently in use. A solid-state battery has several advantages over a lithium-ion polymer battery,
including higher energy density, which allows a battery EV to have a higher range. Rimac, a Croatian
EV start-up, is also working towards improving the energy density of its vehicles through a new battery
module that will use larger 46mm diameter cylindrical cells.

strikes demanding higher salaries that match

Key risk scenario: Geopolitical
inflation. Such movements could paralyse ports,
tensions, climate change and public
protests will cause more supply- freight services and railways, exacerbating supply-
chain blockages chain problems.
Supply chains are also vulnerable to increased
geopolitical tensions and climate threats. Further
Persistent inflationary pressures, caused by supply-
deterioration in China’s ties with the West—
chain disruptions and Russia’s invasion of Ukraine,
especially over Taiwan—could threaten the flow
are pushing up global inflation, which is at its
of semiconductors out of Taiwan, or of key battery
highest level since the 1990s. This could fuel social
elements and metals from China. Meanwhile,
unrest if inflation rises much higher than wage
a particularly cold winter could cause energy
increases. In an extreme scenario, protests could
shortages in Europe, where some vehicle and parts
push workers in major economies and employed
makers are already facing a need to cut production.
by large manufacturers to co-ordinate large-scale

CONSUMER GOODS AND RETAIL OUTLOOK 2023
RETAILERS RESPOND TO PRICING PRESSURES
Consumer goods and retail outlook 2023

• Inflation will push up global retail sales by a robust 5% in US-dollar terms in 2023, but the lower
volume of sales and surging costs will weaken retailers’ profits.
• The rollout of automation technologies will offer opportunities to limit wage growth, which means
that retail employment is unlikely to return to 2019 levels.
• Online sales growth will slow, but the online share of retail will edge up to about 14% of global retail
sales.
• Inflation-wary consumers will prefer to shop at discount stores, helping these retailers to increase
their market shares.
• The economic slowdown in China, caused in part by its zero-covid strategy, will mean fresh
challenges for global luxury brands already affected by the loss of Chinese tourists.
Inflation is hurting shoppers and shops alike. EIU forecasts for 2023 show widening disparities
between retail sales in nominal and real terms. Persistently high inflation will lead to 4.8% growth in
global retail sales in nominal US dollar terms, but this headline rate is inflated by high prices. It masks
slowing growth in real terms, lower purchasing power and lower margins for retailers. However, there
will be some pockets of real-terms growth, mainly in middle-income countries in Asia and the Middle
East. Online retail sales will grow by 6.1%, slower than in 2020-22, but their share of the total retail
market will continue to increase.
High inflation will squeeze profits…

With global inflation forecast at 6.4% in 2023 and demand flattening, retailers’ profits will be squeezed
in 2023. They will not only be challenged by higher costs for raw materials and logistics, but also by
labour and energy costs. Retail wages have been rising faster than overall private-sector wages in many
countries; wholesale electricity rates have also surged over the past year (especially in Europe).
Some retailers will close stores, and the risk of retail bankruptcies will increase after a couple of years
of respite. At maximum risk will be debt-laden non-food retailers, as lower consumer purchasing power
will translate into lower discretionary spending. High energy costs, particularly for refrigerators, will
also put some food retailers in Europe at risk. Moody’s, a rating agency, recently downgraded the credit
rating for Iceland, a UK grocer.
….and retail jobs

One way retailers will try to protect their bottom lines in 2023 is by slashing labour costs. Retail wage
growth, which has been outpacing that of other sectors, will slow. Although we do not currently expect
massive layoffs in the sector, increased pressures on retailers’ margins will slow down new hires. Hopes
of the sector’s employment levels returning to pre-pandemic levels in 2023 are fading.
Many retail chains will also invest in automating their backend processes, reducing their need for
workers. By March 2023 Australian department chain Myer will deploy 200 autonomous mobile robots

with the capacity to process seven out of ten online orders. Japan’s Aeon will collaborate with British
retailer Ocado to build an automated warehouse in Japan by 2023 to manage stocks and basket goods
for online deliveries.
Online retail growth will shift to developing markets

Online sales will continue to rise, with year-on-year growth of 6.1% taking their share of global retail
sales to more than 14%, marginally exceeding the 13.9% share in 2022. However, sales growth will slow
in China, the world’s largest online retail market, as a result of its ‘zero-covid’ policies as well as high
youth unemployment, a weakening economy
and a government crackdown on technology
companies. Meanwhile, the West will be wading Online retail boom will move to developing
markets
through the cost-of-living crisis and a recession. (online sales; % change, US dollars*)
A growing middle class, increasing internet
Latin America Middle East & Africa Asia G7
penetration and policy focus on digitalisation 30
will make many emerging markets attractive for
25
retail investment. The Middle East and Africa and
Latin America will see the fastest pace of growth 20
in online sales in 2023, at over 20%, while Asia 15

will report a 12% increase. Amazon, a US online
10
retailer, plans to enter five new countries in 2023,
with South Africa, Nigeria and Colombia among 5
the candidates. There will also be opportunities
0
for marketplaces, logistics and payment service 2021 22 23 24 25
providers to enable Asia’s micro, small and Sources: Edge by Ascential; EIU. *2022-25 are forecasts.
medium businesses, such as Indonesia’s warungs,

to go digital.
Inflation will push consumers away from hypermarkets to discount retailers in

2023
In a reversal of the pandemic-era trend, big-box stores and hypermarkets will lose market share to
discount and convenience stores in 2023, as reduced purchasing power forces many middle-income
consumers to trade down. In inflation-ridden European markets, a shift in this direction is already
visible in the food retail market. Aldi, a German discount retailer, overtook Morrisons, a supermarket, in
September 2022 to become the fourth-largest grocery retailer in the UK. In France, the largest discount
grocers—including Aldi and Lidl—have expanded their market shares over the past year.
Similar trends are visible in other markets. Data from Placer.ai, which tracks retail footfall, shows
that in July 2022 (when US consumer price inflation was up by 8.5%) discounters and dollar stores were
the only retail category in the US to register growth in footfall. Meanwhile, two of the country’s biggest
retailers, Walmart and Target, registered declines. In South Korea, a surge in food prices is forcing many
restaurant-goers to pick up cheaper ready-to-eat meals from convenience stores.

Besides seeking lower price points, inflation-ridden consumers also tend to buy less but more
often. This would make trips to out-of-town hypermarkets and big-box stores more expensive as fuel
prices remain high. Some hypermarkets will react by moving closer to consumers, setting up smaller
“express” stores that can better compete with convenience stores. This will offer some opportunities for
commercial real-estate owners.
The economic slowdown in China will bring fresh challenges for luxury brands
The loss of Chinese tourists during the pandemic has been a blow for global luxury brands. However,
their sales returned to pre-covid levels in 2021, helped by demand from domestic Chinese buyers. In
2022, China’s zero-covid policies held back growth, although a rebound in Europe’s tourism industry
brought some compensation. However, 2023 will pose more challenges.
China’s consumer spending will be lacklustre as the government maintains its zero-covid policy
and a slowdown in important trade partners, such as the US and EU, weigh on the domestic economy.
China’s real-estate bubble, an important source of wealth for affluent Chinese, has been deflated by
government crackdowns and covid-19. Youth unemployment remains high and will constrain demand
from entry-level luxury buyers, an important customer base for luxury brands.
Other markets will struggle to offset Asia’s sluggishness. The region will account for nearly 18% of the
world’s high-net-worth population in 2023, with China contributing a third of the region’s total. Kering,
a French luxury giant, earns 34% of its revenue from the Asia-Pacific market, excluding Japan. Tourist
spending in Europe, which has been a silver lining this year, may not offer as much support next year.
Whereas pent-up demand has driven a tourism revival in 2022, growth in global tourist arrivals will slow
significantly in 2023.
Asia will account for nearly 18% of global high-net-worth households in 2023
(number of HNWHs >US$1m expected in 2022, '000)
Canada (1,503)
UK (1,396 ) Germany (775)
Japan (1,878)
US China (2,483)
Switzerland (608)
(30,280)
Hong Kong (1,297) Taiwan (849)
Australia (765)
Sources: EIU.

To watch
Plastic purge: Retailers will need to find other ways to package their goods in Spain, which will enforce
a ban on plastic packaging for fruits and vegetables from January 2023 and (along with Italy) slap plastic
taxes on non-reusable packaging. From July 2023 Dutch consumers will have to pay extra for single-use
plastic cups and food packaging. Canada will expand its ban on making and importing single-use plastic
products, due to come into effect by the end of 2022, by banning their sale from December 2023.
Green fashion: Spain’s Inditex, the world’s biggest fast-fashion company, aims to stop using single-use
packaging by next year, as well opting for more sustainable fabrics. Zalando, a German online fashion
retailer, aims to only sell brands that meet certain sustainability standards. Regulators will force the
pace: Germany’s supply-chain regulations, which demand that large companies vet for human rights
and environmental violations, will pose a particular challenge for fashion retailers.
Better protection: Consumer brands and online sellers will face a stream of new privacy, competition
and data regulations in 2023. In January, Finland’s Consumer Protection Act will force online sellers to
offer more transparency into their pricing and discounting strategies. In the US, five states will roll out
data-privacy laws that will affect the way that businesses collect and process consumer data. India
plans to launch a revised data protection bill in early 2023. Businesses will need to recalibrate their data
collection and storage methods to comply with new laws.
political and economic upheavals and increased

Key risk scenario: Extreme weather
poverty.
fuels global food insecurity
A colder than expected winter in Europe could
also have an impact on food production, especially
The two regions most vulnerable to food insecurity
if it is followed by another hot summer of drought.
in 2023 will be developing Asia and the Middle East
An escalation in the energy crisis would worsen
and Africa. Countries in these regions are heavily
the ongoing fertiliser crisis, further pushing up
dependent on food imports and quite exposed to
food prices in Europe. Production of fresh produce,
climate vulnerabilities, and they also have limited
especially foods requiring temperature-controlled
scope for fiscal support. If weather conditions
environments, will be affected in colder countries.
are even worse in 2023 than they were in 2022, an
Mounting costs will push several mom-and-pop
inability to afford or access food will lead to wider
retailers and foodservice outlets out of business.

ENERGY OUTLOOK 2023
SURVIVING THE ENERGY CRISIS
Energy outlook 2023

• Global energy consumption will grow by only 1.3% in 2023 amid a slowing economy.
• Despite decarbonisation targets, coal consumption will grow marginally to compensate for gaps in
gas supplies.
• More extreme weather events will force many countries to fall back on fossil fuels, delaying the
energy transition.
• Renewable energy consumption will surge by about 11%, with Asia leading the way, but investment
will weaken.
• The energy crisis will prompt some governments to backtrack on efforts to phase out the use of
nuclear power.
Energy consumption will see its second year of sluggish growth

With the global economy slowing and energy prices remaining high, total energy consumption across
the 69 countries covered by EIU’s Industry service will rise by just 1.3% in 2023. This will be the second
consecutive year of sluggish consumption growth. In 2022 we estimate that demand grew by only 0.9%,
amid record-high prices and a contraction in gas and oil supplies from Russia.
A reduction in energy supplies is also likely in 2023, as OPEC+ members are willing to cut production
to prevent oil prices from dropping too far. Oil and gas output from Russia is also expected to fall
further, with EU sanctions on oil entering full force by end-2022. Despite pricing pressures from supply-
side issues, fears of a global recession are pulling oil prices down. We forecast an average price for Brent
crude of US$89.6/barrel (b) in 2023, down from US$91.7/b previously.
Asia will lead energy demand growth
Natural gas consumption (mtoe) Oil consumption (mtoe*)

Asia North America Europe 2,000
Latin America Middle East & Africa
1,000
1,500
800
600 1,000
400
500
200
0 0
2019 20 21 22 23 2019 20 21 22 23
Sources: EIU; © OECD/IEA 2022 [www.iea.org/statistics]. *million tonnes oil equivalent †Europe totals exclude Russia.

ENERGY OUTLOOK 2023
Natural gas usage will be flat, but coal and oil consumption will grow
Global natural gas consumption will remain flat in 2023 as it continues to decline in Europe (-1.7%)
and remains flat in North America, offsetting gains in the rest of the world. We do not expect gas
consumption in Europe (excluding Russia) to
return to pre-war levels during our forecast period Renewables consumption will remain strong
of 2022-31. However, gas demand in Asia will (% change year on year)
rise by 2.4% in 2023, with the region on track to Hydro Non-hydro

25
become the largest global market for natural gas
(surpassing North America) by 2027. 20
Coal consumption will benefit from increased
policy focus on energy security, growing for the 15
third consecutive year in 2023, although only

10
marginally. Oil consumption will grow by 1.4%,
mainly supported by Asia where usage will expand
5
by 2.9%. On the contrary, oil demand in Europe
will contract by 1% as economic activity slows 0
down and the EU embargo on Russian oil imports 2019 20 21 22 23
Sources: EIU; © OECD/IEA 2022 [www.iea.org/statistics].
becomes fully effective.
Growth in renewable energy will stay strong

Showing a much brighter outlook than fossil fuels, solar and wind energy consumption will surge
by 11% during 2023 (although from a smaller base) as more projects come online. We forecast that
solar and wind capacity addition will remain strong during our forecast period, prompting renewable
energy consumption to grow at an annual average rate of 10% during the next ten years. Asia is and will
continue to be the world’s biggest market for renewable energy investment, with the lion’s share going
to China, India, Japan and South Korea.
However, the commodity price boom will divert some investment towards fossil-fuel projects.
Higher interest rates will also increase the cost of financing renewable energy projects, slowing down
the pace of the energy transition. Financial support for energy transition projects in developing
countries could further diminish, disproportionately affecting poor and vulnerable geographies.
Energy crises caused by extreme weather events will encourage coal usage
Increasing frequency of extreme weather events, such as droughts, heatwaves and hurricanes,
will have an adverse impact on countries’ energy systems. Dry weather in much of the northern
hemisphere in 2022 led to drought situations in major river systems such as the Yangtze (China),
the Danube and the Rhine (Europe), and the Colorado River (US), severely impacting hydro power
generation, which provides almost half of low-carbon electricity generation globally. Heatwaves could
lead to blackouts as they push up peak power demand, while diminishing productivity of power plants;
hurricanes could damage energy infrastructure.
With meteorologists forecasting more weather events—including a rare third consecutive year of
La Niña—we expect more short-term power crises around the world in 2023. Countries will keep falling

ENERGY OUTLOOK 2023
back on fossil fuels to cope with such scenarios. China and India, where hydro power accounts for more
than 10% of total electricity generation, are most likely to do so. Another example is Brazil, which relies
on hydro power for 60% of total power generation.
Developing countries will face an uphill road to climate finance

A volatile economic and geopolitical environment, plus recent extreme weather events in Europe and
the US, are likely to shift public sentiment in those countries towards channelling climate adaptation
funds for domestic needs before committing to assist other countries. This will affect availability
of global climate finance. Developing countries, such as India and Indonesia, will struggle to secure
meaningful commitments from the rich world to finance their energy transition. Consequently, these
countries will be slower to wean themselves off dirty fuels such as coal, and the divergence in energy
transition between the developed and the developing world will widen.
A comeback for nuclear energy

The energy crisis will prompt some governments to rethink their plans to phase out nuclear power, as
sentiment shifts in favour of reliable energy supplies. Japan, which idled its nuclear plants in the wake
of the Fukushima Daiichi disaster in 2011, plans to restart seven nuclear reactors by the summer of 2023.
Including these seven, Japan currently has 23 commercially operable but offline nuclear reactors. In all,
the country’s reactors have a combined installed power-generation capacity of 21.7 GW. We do not rule
out the Japanese government announcing the restart of more nuclear reactors during 2023.
A more striking example is Germany. After the Fukushima disaster, Germany started shutting down
its nuclear power plants, with three remaining ones set to close by the end of 2022. However, energy
security challenges have forced the country to make a u-turn on its nuclear policy. Recent comments
by the government suggest that the country could extend the lifespan of the remaining plants. Other
countries, such as India and China, are also likely to renew focus on nuclear energy in 2023.
To watch
LNG terminals: Germany, which is suffering from its earlier reliance on piped Russian gas, will see its
first regasification unit come online in early 2023. The offshore LNG terminal at Wilhelmshaven will
have the capacity to handle 7.5bn cu metres (bcm) of natural gas per year. Another under-construction
terminal at Brunsbüttel is expected to add an additional 3-5 bcm per year of import capacity. The two
facilities together could meet more than 10% of Germany’s annual gas demand by 2023.
Iran negotiation: A tight crude oil market has revived talks over a nuclear deal with Iran, a major crude
oil producer with spare export capacity. However, the negotiations, which will be closely watched, are
likely to stretch into 2023, particularly if Iran’s government cracks down hard on current civil protests.
Despite a recent flurry of diplomatic activity, we do not expect Iran and the US to reach a deal that
would allow some curbs on production and exports to be lifted. With no additional supply from Iran
likely to be made available in 2023, the global oil market will remain tight.
Nigeria’s new refinery: A 650,000-b/day mega-refinery and petrochemical complex is currently
under construction in Nigeria. The Dangote refinery, which will cost an estimated US$19bn, is expected
to reach full production in 2023. The facility will be the largest single-train refinery in the world and,
once in operation, will make it possible for Nigeria to drastically cut its import bill for refined products.
ENERGY OUTLOOK 2023
However, the refinery will sell locally only if prices are market led. A scaling-back of Nigeria’s fuel
subsidies in 2023 will therefore be necessary to allow the refinery to supply the domestic market at
a profit.
Energy-intensive industries such as chemicals,

Key risk scenario: A cold winter could
steel, glass and fertilisers would be worst hit,
exacerbate Europe’s energy crisis
with knock-on effects further down the supply
chain. Failure to conserve gas in the upcoming
A colder-than-normal winter will push household
winter months will lead European governments
gas consumption above expected levels, likely
to increase coal-fired power generation, hindering
derailing Europe’s plans to reduce gas consumption
the region’s efforts to combat climate change.
during the next months. In the absence of Russian
Additionally, energy shortage in Europe will keep
supply, increased household demand will dry up
gas prices higher for longer than expected in
storages, prompting the rationing of energy to the
2023, further increasing the import bills of many
industrial sector. This will worsen the economic
commodity importers, especially in Asia and Africa.
recession.
Europe rushes to build LNG import capacity
All units in bn cu metres Finland

60
LNG terminals' annual
5 regasification capacity
Planned & under construction

Estland
Operational
Final capacity by 2030

Lettland
RUSSIA
Litauen
Niederlande
Ireland UK Poland
Germany
Belgium
France
Croatia
Portugal
Italy Albania
Spain
Greece
Turkey
EU Non-EU
Malta
500 km
Sources: Gas Infrastructure Europe; EIU. Cyprus

FINANCE OUTLOOK 2023
A NEW TEST FOR FINANCIAL STABILITY
Finance outlook 2023

• Weakening economic output and rising interest rates will lead to more difficult conditions for banks,
insurers and fund managers in 2023 than in the past two years.
• The impact will be particularly acute in North America and Europe, where governments will offer
support. The environment will be tough in Asia as well, although policy rates will rise by less.
• Heavily indebted developing countries will find it harder to refinance foreign debt, driving some
to default or require rescues to avoid it. However, the IMF will continue its lenient treatment of
economies requiring its financing programmes.
• The current capital-market crunch will hobble a wide variety of loss-making fintech challengers that
sought to outflank incumbents in banking, payments and other activities.
Global financial firms will face tougher conditions in 2023 in an environment marked by slowing
economic growth, spiking prices, unevenly rising interest rates and sharpening international political
tensions. Fortunately, firms in the industry have greatly improved their resilience over the past decade
by bolstering their capital and liquidity positions, and leaving behind non-core activities and markets.
As a result, most should prove capable of riding out the stresses arising from this latest economic
downturn. In the longer term, the industry will benefit from enduring trends towards greater use
of digital services, improved financial inclusion and expanding needs for savings to cover ageing
populations and investment to confront challenges like the green transition.
Arrears and debt defaults will rise, but governments will offer support
Rising rates generally have positive impacts for financial firms, as they lead to wider interest-rate
spreads for banks and better investment returns on the portfolios of insurance companies and fund
managers. However, they also slow the overall economy and reduce the cash available to households
and firms, while trimming demand for now-more-expensive credit. According to our forecasts,
financial firms in the west have enjoyed some widening in interest margins recently, but these will
soon narrow again as demand wanes for credit
for consumption and investment. Meanwhile,
Lending will continue to rise in 2023 margins will remain stable in China, Japan and
(total lending; US$ trn)
2022 2023 most of the rest of Asia.
0 20 40 60 80 The toxic combination of weakening
US economies and rising interest rates may lead to a
rise in arrears and defaults on debts. There are few
China signals so far indicating such distress, setting aside
the special case of China’s property developers
Japan
who took advance payment for future apartments
Germany and borrowed heavily in US-dollar debt on
Source: EIU. overseas markets.

In any case, policymakers may step in, as they did during the pandemic, to support household and
company borrowers who would otherwise struggle to repay debts. For example, lawmakers in Europe
have outlined plans to cap or subsidise energy costs. This will leave borrowers in a better position to
repay loans, while shifting rising costs to the public exchequer.
Sovereign debtors and asset markets will remain under pressure

One class of borrowers—heavily indebted developing countries—will have to proceed with only a
limited safety net. Tightening financial conditions and rising costs on US-dollar and euro debt will make
it more difficult and costly for them to roll over their debts. Small economies like Sri Lanka and Zambia
have already defaulted (as did Russia in special circumstances), and larger economies could soon come
into distress.
Moreover, China has emerged as an important creditor in the past decade but remains reluctant
to participate in the types of debt-relief efforts used by OECD creditors. This could make it more
difficult to reach compromises on debt reduction.
No more easy money On a positive note, the IMF under its current
(policy interest rates*; end-period; %) management has taken an accommodative
US Japan Euro zone China approach to debt-burdened countries,
4
provided they outline some path towards fiscal
3 sustainability.
Markets for stock and bonds tend to anticipate
2 economic recoveries, generating financial
conditions and rising asset prices well in advance
1 of official output figures. However, market
participants first want to see a future turning

0
point, such as a pause in interest-rate hikes by
the US Federal Reserve (Fed, the central bank).
-1
2018 19 20 21 22 23 This will not take place so long as price pressures
Source: EIU. *2022-23 are forecasts. remain very high in the US.
Financial challengers will stumble badly

The incumbents of the financial industry will suffer in 2023, but their upstart rivals - including fintech
companies - are likely to fail in large numbers. Funders such as venture-capital and private-equity
firms are insisting in the current market environment that financial challengers stop making losses and
chart a path to profitability. This will prove impossible for some upstarts in consumer credit, payments
and robo-advised fund management. Others will have to sharply curtail their expenses, including for
marketing and customer acquisition. The culling of competition will ease pressures on established
banks, insurers and fund managers.
Meanwhile, the recent sour turn in the markets has deflated a wide range of frothy financial activities
that thrived in the bull run. The air has gone out of the cryptocurrencies and decentralised finance
that aimed to displace banks and payments firms. Blank-cheque companies intended to outflank
investment banks in bringing firms to the public markets, but instead they are being forced to return
funds to investors. Non-bank consumer lenders are succumbing to rising levels of borrower defaults.
Taking a longer view, a number of enduring trends will sustain most financial firms. Most will enjoy
a tailwind from citizens’ rapidly rising use of formal financial services, increasing needs for savings for
ageing populations and the huge financing needs for policy objectives such as decarbonisation and
infrastructure improvements. A shift to digital strategies focused on mobile and online services will
allow firms to close physical locations and trim staff expenses.
To watch
Exiting Mexico: Citigroup is likely to sell its Mexico retail banking franchise, which was once a
crown jewel in its globe-spanning network. The US banking group has spun off many of its far-flung
operations in recent years as international lenders trim their footprints.
Fresh Basel: The final implementation dates for Basel III (also known as Basel IV) arrive on January
1st 2023, after having been delayed by one year due to the pandemic. Customers will not notice the
changes, which require new government regulations and will change the way that banks account for
base capital, credit risk using standardised or internal models, as well as mandatory disclosures.
China’s e-yuan: China is likely to expand its pilot use of its central bank digital currency (CBDC),
dubbed the e-yuan, and may implement it countrywide. The country is the most advanced among
major economies in pursuing CBDCs, but has yet to devise a way to use it in international trade.
This led to substantial losses, but the costs

Key risk scenario: Rising geopolitical
would be much larger if China seized Taiwan in
tensions
2023 (not our core scenario). US bank executives
told a congressional committee in September 2022
Following the outbreak of Russia’s war in Ukraine
that they would comply with any official demand
in early 2022, a coalition of democratic nations
to exit their China operations. Financial firms from
imposed sanctions on Russia, which in turn
Japan and elsewhere would also inevitably shutter
imposed exchange controls and other measures
their China units. Developed-country financiers
that locked capital inside its economy. As a result,
have only a small footprint in China, but have
many western banks and insurers moved to sell
coveted the country’s large and growing financial
their local operations, often at fire-sale prices, or
markets. At the same time, China’s banks, which
simply wind them down. Other firms continue to
have expanded overseas in recent years, would be
operate under local management and without
frozen out of the economies of countries backing
access to any funds. Authorities in western Europe
Taiwan in any conflict.
seized and closed Russian firms’ operations across
the continent.

HEALTHCARE OUTLOOK 2023
THE AFTERMATH OF THE PANDEMIC
Healthcare outlook 2023

• Healthcare spending will fall in 2023 in real terms, given high inflation and slow economic growth,
forcing difficult decisions on how to provide care.
• Digitalisation of the healthcare system will continue, but the use of health data will come under
stricter regulation in the US, Europe and China.
• Patent cliffs for key drugs and measures to control pharmaceutical pricing in the US, India and
elsewhere will force some major pharma companies to spur growth through deals.
• Supply-chain disruptions will continue to push up drugmakers’ costs, despite investment in more
localised pharmaceutical production.
Healthcare spending growth will fail to match inflation

The covid-19 pandemic forced governments to spend heavily on rolling out vaccination programmes
and investing in healthcare infrastructure and staffing. However, government plans to maintain or
increase spending in order to tackle a backlog of non-covid care and resolve staffing issues have been
upended by the global economic slowdown. EIU expects total healthcare spending (public and private
combined) to rise by 4.9% in nominal US-dollar terms in 2023, propelled by higher costs and wages.
However, spending will fall in real terms as it fails to keep pace with inflation. We estimate that there
will have been a similar pattern in 2022, meaning that 2023 will be the second successive year of real-
terms funding declines.
The gap between spending and costs will be
most acute in Europe, as well as in developed
Global healthcare spending will fall in Asian countries such as Japan and South Korea.
real terms
This will force healthcare providers to make
(% change, year on year*)
some difficult decisions about how to provide
Nominal growth, US$ Real growth
15 care, cutting non-essential services and pushing
up waiting lists. OECD data suggest that after

10
the global financial crisis of 2008-09, spending
5 on preventive care and pharmaceuticals was
squeezed the most, and we expect this pattern
0 to be repeated. Even so, we expect recruitment
and retention of healthcare staff to be difficult as
-5
wages also fall in real terms. However, there will
be pockets of strong growth in the healthcare
-10
2019 20 21 22 23 sector, particularly in the Gulf countries, which are
Sources: World Bank; OECD; EIU. *2022 and 2023 are forecast. benefiting from high oil prices.

Regulators will monitor the use of health data in 2023

From maintaining electronic medical records to launching online health apps, the digitalisation of the
healthcare sector will remain a key trend in 2023. However, concerns over protection of health data will
increase. The EU aims to invest €220m (US$220m) between 2023 and 2027 in the development of the
European Health Data Space, a cross-border digital platform through which people can control their
own electronic health data.
The aim is to ensure data privacy, building on the EU’s General Data Protection Regulation, while
making the bloc’s data more interoperable and accessible. The UK has a similar action plan that would
centralise data storage and protection, while allowing clinicians and researchers to access it remotely.
Such initiatives are likely to be copied elsewhere, after the World Health Organisation (WHO) pledged
to partner with the EU in 2023 to carry out the plan.
Protecting health data is easier in countries dominated by well-regulated public healthcare
systems, however. The US, with its system of competing private healthcare companies, will face a
bigger challenge in 2023 as it tries to extend its data protection laws under the proposed American
Data Privacy and Protection Act. China will also step up enforcement of its health data protection
regulations following the surge in use of online health apps during the pandemic.
Life expectancy will recover fully in 2023

According to The Economist’s excess death tracker, the covid-19 pandemic has so far killed around 22m
people worldwide. Even official statistics, which put covid deaths at 6.5m, suggest that covid-19 is the
fourth-largest cause of death on record. The UN calculates that by 2021 the disease had cut 1.7 years
off global life expectancy, reducing it to 71.1 years. This was the first fall since 1959, at the height of the
Great Chinese famine. While a recovery probably began in 2022, the UN calculates that 2023 will be the
year when life expectancy first exceeds 2019 levels.
One of the biggest factors driving life expectancy is childhood immunisation, which was disrupted
by the pandemic. There will be good news on this front in 2023, as healthcare systems and logistics
return to normalcy. Malaria vaccines will be the next frontier. Mosquirix, developed by GlaxoSmithKline
(UK), will be used more widely across Africa in 2023, but there are also hopes that R21/Matrix-M, a more
effective malaria vaccine developed by Oxford University, will gain regulatory approval. But there is no
room for complacency. The WHO had hoped to eradicate polio in 2023 under its 2030 agenda, but the
disease is currently seeing a revival thanks to low vaccination uptake.
Pharmaceutical and biotech companies will see margins narrow

The combination of slower healthcare spending and high inflation is already forcing a reckoning
for small biotech companies. As funding dries up after an unprecedented boom, many are cancelling
research programmes or laying off staff. In 2023 the pressure will extend to pharmaceutical companies.
Although we expect global pharmaceutical sales to rise by 5% in US-dollar terms, much of this growth
will reflect higher input costs, while regulators will push down on pricing. The US, which accounts
for one-third of global sales, will use the Inflation Reduction Act to allow its public health funds to
buy cheaper medicines. China’s steady centralisation of its drug purchasing system will make price
negotiations tenser there.

2023 is also a key year for patent expiry, after

Asia’s share of pharma sales will rise
several years of lull. In particular, AbbVie (US)
(pharma sales; US$ bn*)
will lose market exclusivity on its blockbuster
North America Western Europe Eastern Europe
anti-inflammatory, Humira, the world’s best- Asia Latin America Middle East & Africa
selling drug. Januvia (sitagliptin), a diabetes drug 1,600
produced by Merck (US) will also lose market 1,400
exclusivity in the US. Although the value of 1,200
global patent expiries will not peak until 2028, 1,000
the prospect of a drop in revenue will prompt 800
drugmakers to dip into the market with bolt- 600
on acquisitions, especially given that market 400
valuations for their targets will be low. Another 200
key driver for mergers and acquisitions will be 0

2019 20 21 22 23
the pivot away from covid-19 vaccines, with Source: EIU. *2022 and 2023 are forecast.
drugmakers such as Pfizer and Moderna keen to
diversify their drug portfolios.
The energy crisis

Supply-chain disruptions will continue for the pharmaceutical industry in 2023, but the energy crisis will
lend a new twist. During the pandemic, lockdowns (particularly in China) contributed to logistics and
production problems that particularly affected shipments of active pharmaceutical ingredients (APIs).
Governments reacted by encouraging reshoring (the practice of bringing previously exported business
operations back from overseas). India, which imports 70% of its APIs from China, is investing US$1.3bn
into domestic API production. The EU and US also encouraged companies to reshore production for
APIs and other supplies, despite higher domestic costs.
However, the Russia-Ukraine war has caused an energy crisis that threatens these reshoring plans,
particularly in Europe. Generic drugmakers in the EU warn that ultra-high energy costs, combined with
the possibility of power cuts, may make it impossible to produce APIs and medicines locally. Medicines
for Europe, a lobbying group, warns that raw material costs have gone up by 50-160%, and is pushing
for equivalent price rises. Rising labour and raw material costs elsewhere could also change the sums as
drugmakers balance their need for secure supply chains against their desire for profits.
To watch
Genomic data: The UK’s Genomics England aims to gather genomic data from up to 100,000
newborns in 2023 to help research into rare diseases. The government research body has already
reached a goal of sequencing 100,000 adult genomes, and has now set a new target of 500,000 as it
builds up its database for research.
Finland decentralisation: After multiple attempts, in July 2021 Finland passed a major healthcare
reform that will shift healthcare provision from municipalities to 21 welfare regions. It will gradually
come into force by January 2023 and seeks to make healthcare provision more uniform while boosting
productivity.

African vaccines: BioNTech (Germany) units will open in Rwanda and possibly Senegal to produce
vaccines for covid-19. South Africa will also see Biovac start producing Pfizer/BioNTech vaccines
commercially, while Afrigen, backed by the WHO, hopes to start clinical trials of its own covid-19
vaccine next year.
A new covid variant would pose a challenge

Key risk scenario: New variant of
for the world, but China faces its own hurdle
coronavirus, or another infectious
disease even if Omicron is the last variant. We expect the
government’s zero-covid policy to persist well into
2023, partly because it will be difficult to come up
Jeffrey Barrett, former head of the Covid-19
with a good exit strategy. Whereas the zero-covid
Genomics UK Consortium, recently voiced a
strategy has dampened economic growth, lifting
careful hope that the Omicron variant may be the
restrictions entirely could quickly fill China’s 50,000
last for covid-19, given that it has proved so stable.
intensive care unit beds. In May 2022 a Fudan
However, he admitted that there is still room for
University study published in a UK-based journal,
surprises. Even Omicron itself is mutating, with the
Nature, found that without mobility controls the
latest version—BA.5—able to overcome previous
Omicron variant of the coronavirus could cause
immunity. Moreover the potential for another
1.6m deaths in China over six months. We expect
(non-covid) virus or other pathogen to spread
China to undertake a renewed push for vaccination
globally has increased as global travel restarts.
in 2023, probably with a domestically produced
The spread of the monkeypox virus is just one of
mRNA vaccine.
several warnings that will keep researchers vigilant
in 2023.

TECHNOLOGY AND TELECOMS OUTLOOK 2023
THE BATTLE FOR DIGITAL SUPREMACY
Technology and telecoms outlook 2023

• The metaverse will not become mass-market in 2023, but this will not stop heavy investment in the
technology. The drive to standardisation and the battle with web3 will be at the forefront.
• Artificial intelligence (AI) will continue to develop, after several breakthroughs in 2022, but will
encounter challenges from new regulations in key jurisdictions.
• Semiconductors will continue to be a geopolitical tool between the US and China, involving many
other countries. Some companies producing the most advanced products and equipment will
benefit.
• Asian telecommunications companies will continue to look for consolidation in 2023. Mobile
markets with four or more mobile network operators, such as Sri Lanka, Japan and India, are the
most likely to secure deals.
Mobile and broadband subscriptions will continue to rise in 2023, while fixed-line connections will
continue their decline. The technology and telecoms sectors have so far weathered the pandemic
storm effectively, but new macro headwinds—from weaker economic growth and higher inflation—will
have an impact next year. Amid such a backdrop, here are some of the key trends to watch for in 2023.
Metaverse will not become mainstream, but will receive heavy investment
The metaverse will not become mainstream in 2023, but it will still be at the forefront of tech innovation
and investment. We continue to define the metaverse as immersive online platforms that use
augmented and virtual reality technologies to enable users to socialise, work, play or shop virtually.
The metaverse and web3 are different
Metaverse Web3
From web 1.0 (reading) to web 2.0

From PCs to smartphones to augmented
Evolution (reading and writing) to web3 (reading,
glasses and headsets
writing and owning)
Core principle Immersive and virtual world Decentralisation, trustless environment
Key technologies Augmented, mixed and virtual reality Blockchain, crypto assets (NFT, DAO...)
Users in charge as opposed to corporate

Competitive Big companies and siloed /different entities, with nobody having a dominant
landscape metaverses possible position
Source: EIU.

New devices, whether augmented glasses or virtual reality (VR) headsets, will be launched in 2023,
driving development of the overall ecosystem. They will include an Apple headset that is likely to offer
augmented reality rather than full VR.
The tech industry will focus on standards to ensure that there are rules in place to allow for
interoperability and interconnectedness of different metaverse platforms. It will also focus on creating
products for industry and enterprise clients, such as advertisements for virtual forefronts, digital twins,
and new types of education and learning services.
The metaverse will also prove to be a battleground for web3—the two, while often interchanged, are
not the same. Web3 is an entirely new framework based on blockchain and crypto assets whose core
principles are decentralisation and diffuse ownership among individual users as opposed to corporate
entities; as such it can operate outside of the metaverse). Centralisation has always occurred in the past
with new technologies, so the metaverse is also likely to happen in a centralised manner, but web3 will
continue to gain ground as a potential alternative in the coming year.
Developments in AI will come hand in hand with regulations

Artificial intelligence (AI) has seen some major developments in 2022—AlphaFold, an AI programme
designed by DeepMind (Alphabet), has proven capable of breaking down the structure of a protein,
underscoring the role of technology in scientific progress. AI models, which are trained on unlabelled
data and capable of performing different tasks, and large language models, which learn from billions of
words and phrases, will continue to evolve and provide solutions for multiple tasks across industries.
But there is a debate as to whether these deep-learning models are too limited to attain human-like
intelligence (if it is attainable), or whether there needs to be the development of other paradigms, such
as ones where the context and the entire environment take the lead.
Although this debate will continue into 2023, that year will also be one of AI regulation. The EU is
likely to push its own AI Act, which will seek to ban high-risk use cases before they enter the market,
as opposed to taking a wait-and-see approach. This is in contrast to the US model, which focuses on
innovation rather than regulation, although even the US Federal Trade Commission is pushing for
companies to be held accountable for discriminatory algorithms. China will also continue to focus on
algorithms, with greater scrutiny on how companies design and use them.
Chips face market and geopolitical challenges

There will be two main semiconductor-related challenges in 2023. From a market perspective, there will
be a shortage of certain components and a glut of others, longer lead times for the most sophisticated
machinery, and increasing demand for custom rather than mass demand chips, all of which will impact
the competitive landscape. Some companies will be major winners, such as Arm, whose blueprints are
used in many designs, and TSMC, which can build the most advanced chips. Others will lose out, such
as Intel, which is still lagging behind the leaders in manufacturing and whose traditional designs will be
under even greater pressure. In the longer term, demand for chips will remain strong, even if traditional
products such as PCs and smartphones plateau, because of the demand for digital transformation and
the rise of the metaverse.

Geopolitically, semiconductors will continue to be the key element in the US-China tech supremacy
battle. The US will continue to restrict China’s access to key technologies, while China will double down
on its attempts to be self-reliant. This will increasingly involve other countries, as they will need to
make a choice between the two nations. Russia, having been banned from buying advanced chips since
its invasion of Ukraine, and facing unprecedented sanctions on a country-level, will look to procure
some by any means necessary.
More telecoms operators in Asia will seek consolidation

Even as revenue growth slows, telecoms operators in Asia will need to invest in both 5G and fibre
networks. This is why we expect that they will look for consolidation across their regional operations in
2023, especially in markets with four or more players. The trend started in 2022, where deals involving
companies such as CK Hutchinson (Hong Kong) and Axiata (Malaysia) were announced in Indonesia,
Thailand and Malaysia.
We forecast that companies in Japan and Sri Lanka (both four-player markets) will look for a similar
way to grow inorganically in 2023.
• The ongoing economic distress in Sri Lanka has already led some companies to report losses since
the first quarter of 2022. Rate rises implemented in 2022, increased telecoms levies and an ongoing
SIM card registration drive will slow down cellular subscription in 2023, and companies may consider
consolidation.
• Japan could also go back to being a three-player market as it was until 2020, when Rakuten, a low-
cost player, entered the market. The new entrant’s performance has worsened since May 2022 as
its promotional free plans have ended. Other incumbents—SoftBank, NTT and KDDI—will look for
ways to balance revenue decline and investment in 5G expansion and 6G trials in 2023.
Consolidation will not just involve private operators, but also public ones. For instance, the Indian
government could renew its efforts to merge debt-ridden BSNL (mobile) and MTNL (fixed) in 2023.
To watch
EU clout: The EU’s Digital Markets Act, which focuses on making the largest technology companies
gatekeepers with specific obligations aimed at boosting competition, could be enforced as early as the
spring of 2023. Other rules, focusing on data and AI, could also become laws this year, strengthening the
EU’s position as the global tech regulator.
Data deals: A March 2022 deal on US-EU data transfers will be ratified in 2023, granting a new legal
framework for transatlantic data flows. As with its previous iterations, which were eventually invalidated
because of the incompatibility between US surveillance rules and EU privacy rights, we expect a lawsuit
to reach the European Court of Justice, which will rule on the legality of the deal in 2025.
Ad-supported tiers: Both Netflix and Disney will start rolling out their ad-supported plans in key
markets from late 2022, but the bulk of the roll-out internationally will happen in 2023. Advertising
will increasingly come to streaming as companies look to boost their revenue and consolidate their
customer bases.

Mobile markets in Japan and Sri Lanka hold potential for consolidation
(number of mobile network operators)
Japan
China
Pakistan South Korea
India Taiwan
Hong Kong
Vietnam
Philippines
Thailand
Sri Lanka Malaysia
Singapore Indonesia
Austral ia
Number of MNOs
Three
Four
Five New Zealand
Source: EIU.
attacks a day. Regulators will have an increased

Key risk scenario: Inter-
role going forward, with the focus on mandatory
state cyberwar cripples state
infrastructure in major economies reporting and critical infrastructure.
Indeed, infrastructure and healthcare systems
will be extremely vulnerable to cyberattacks, as the
Cyberwar can have a major impact on the global
2020-21 attacks on Colonial Pipeline and Universal
economy, especially if it involves major players.
Health Services (both US) showed. Financial
A major short-term issue is the increased risk
vulnerability will be an increasing concern, too,
of cyberattacks as more and more companies
after Lloyd’s of London, which underwrites
undertake digital transformation and become
reinsurance for many commercial insurance plans,
connected, increasing the attack surface for
said that it would require an exclusion for state-led
hackers. The Norwegian sovereign fund has
cyberattacks from March 2023. This highlights the
recently highlighted that it suffers three major
rising cyber risks from the Russia-Ukraine war.

TOURISM OUTLOOK 2023
TURBULENCE IN THE TRAVEL INDUSTRY
Tourism outlook 2023

• Global tourism arrivals will rise by 30% in 2023, following 60% growth in 2022, but they will still not
return to pre-pandemic levels.
• The economic downturn, sanctions on Russia and, above all, China’s zero-covid strategy will be
among the factors weighing on the industry.
• Hotels, restaurants and airports will struggle to cope with labour shortages, wage demands, and
high food and energy prices.
• Even so, international airlines are expected to return to profitability, benefiting from continued pent-
up demand.
• The impact of climate change on the industry will become more apparent, with high temperatures,
water shortages and floods forcing tourism destinations to take action.
Tourism arrivals will rise by 30% globally

Last year, EIU expected global tourism arrivals to recover to near pre-pandemic levels by the end of
2023, as fear of covid-19 recedes and restrictions are lifted. However, Russia’s invasion of Ukraine in
February 2022 and the accompanying political instability, global inflation and economic slowdown—as
well as China’s strict zero-covid strategy—have dampened those expectations. We have now pushed
our forecast for a tourism recovery firmly into 2024, with considerable turbulence likely in the interim.
Even so, the depth of the tourism slump
in 2020-21 means that strong growth is near- Tourism arrivals will fall short of 2019 levels
inevitable in 2023 now that travel restrictions have (International arrivals; m*)
been lifted in most countries. Globally, we expect Asia Middle East & Africa Latin America
Eastern Europe Western Europe North America
pent-up demand for travel to drive growth of 30% 800
in international tourism arrivals, taking them to
700
1.6bn. This follows growth of 60% in 2022, but will
600
still not be enough to take total arrivals to their
500
2019 level of 1.8bn. However, the trajectory will
400
differ by region. Much of the Middle East, buoyed
300
by high oil prices, has already seen a full recovery,
200
while Eastern Europe will have to wait until 2025
because of the impact of the war in Ukraine. Other 100
regions will range in between, with most reaching 0

2019 20 21 22 23
a full recovery in 2024. Sources: World Tourism Organisation; EIU. *2022 and 2023 are forecasts

Chinese travellers will remain largely absent

While the war in Ukraine has delayed the tourism recovery, an even bigger factor has been China’s
zero-covid policy. China accounted for around one-tenth of the world’s tourism departures before
covid, but we now expect its borders to remain largely locked until at least mid-2023. There is even a
risk that the zero-covid policy could be extended if the pandemic continues to be a threat. If all goes
to plan, however, authorities will gradually take a less strict stance towards the virus, easing (but not
lifting) mandatory quarantine measures and inbound travel controls. However, frequent mass testing
of the population in big cities, and occasional lockdowns in smaller cities will continue to keep sporadic
outbreaks from spiralling out of control.
In this scenario, we expect the number of outbound travellers from China to more than double in
2023, to around 59m. Even so, that would be only a little more than a third of the 155m departures in
2019, when China was the world’s biggest source of tourists. This reduced demand will primarily affect
tourist destinations in Asia, including Thailand and Hong Kong, which used to be highly dependent
on Chinese visitors. But the dampening effect will also be felt in Europe, the US and elsewhere. Even
China’s domestic tourism—which also fell in 2020-22—will be affected by the country’s economic
slowdown. We expect GDP growth of “just” 4.7% for China in 2023, which will feel like a recession in a
country used to strong growth.
Labour shortages and high prices will add to woes

Inflation will not only affect travellers in 2023, but also the tourism sector. Hotels, bars and restaurants
are grappling with high food and energy prices, while airlines are contending with high fuel bills. Airlines
also face increasing wage pressures amid a chronic labour shortage. After laying off staff during the
pandemic, many companies have struggled to rehire. This lack of staff has caused airport queues and
caps on passenger numbers, as well as flight cancellations and lost luggage in the summer of 2022. The
chief executive of Heathrow (UK) has warned that problems will last until the end of 2023.
The UK faces particular issues, because Brexit
has stemmed the flow of seasonal workers from Tourism expenditure will rebound faster
the EU. However, there are also labour shortages (Spending by international tourists; US$ bn*)
across Europe and in the US, where employment Asia Middle East & Africa Latin America
in the leisure and entertainment industries is 1,600
still nearly 1m short of 2019 levels. The economic 1,400
slowdown should make recruitment easier if
1,200
job losses mount elsewhere. Several countries,
1,000
including New Zealand and possibly the UK, will
800
also ease visa requirements. Even so, it will take
600
time to replace skills lost during the pandemic.
400
Moreover, this labour-intensive industry is also
200
likely to see more disruptive strikes in 2023 as
workers themselves demand higher wages to cope 0
2019 20 21 22 23
with the higher cost of living. Sources: World Tourism Organisation; EIU. *2022 and 2023 are forecasts

Airlines will edge closer to profit

Major airlines in the US cut costs throughout the pandemic by laying off staff, restructuring fleets and
borrowing heavily. They also received big government bailouts, particularly in Europe, North America
and parts of Asia. Loans, wage subsidies and deferred taxes collectively totalled US$243bn in 2021.
Nevertheless, the International Air Transport Association (IATA) expects airlines to suffer a combined
net loss of US$9.7bn in 2022, after losing around US$180bn in 2020-21.
Despite the difficult economic conditions, the signs for 2023 are brighter, and IATA suggests
that airlines may even head towards profitability if travel rebounds as expected. One big risk will
be fuel costs: although oil prices are now softening, they are priced in US dollars, and the dollar is
strengthening against nearly every currency. As a result, US-based airlines are the most likely to be
profitable in 2023, while airlines in other regions will struggle.
The impact of climate change will increase

Climate change has already started to have an impact on key tourism destinations, with ski resorts
lacking snow and summer resorts affected by droughts and wildfires. In 2023 these impacts will
become clearer if weather-related events continue to get more extreme. Indeed, back in 2009, the
Association of British Travel Agents pinpointed 2023 as the key date for its sustainable tourism drive,
which aimed to protect the environment and develop sustainable transport. However, not enough
progress has been made—tourism now accounts for between 5% and 8% of global greenhouse gas
emissions. Nepal is one country that is setting 2023 as the start of a new sustainable tourism drive.
Travellers’ awareness of the environmental consequences of tourism may also change their travel
plans in 2023. According to the European Investment Bank, 37% of Chinese people, 22% of Europeans
and 22% of Americans say that they will avoid flying because of climate-change concerns. Some of
those who still want to travel will be prepared to pay higher prices for more eco-friendly options, or
carbon-offsetting efforts. Regulators will pile on the pressure too. 2023 will see the conclusion of the
voluntary pilot phase of the Carbon Offsetting and Reduction Scheme for International Aviation to
reduce emissions from international flights. Eight more countries, including Cambodia, Cuba and
Zimbabwe, will join, bringing the total number of participating states to 115.
To watch
Saudi sojourns: The Middle East has seen an extremely strong revival in tourism in 2022. International
arrivals rose by 287% year on year in January to July 2022, taking them close to 2019 levels. Saudi Arabia,
which has seen the resumption of the Hajj pilgrimage, has particularly big plans for its tourism sector
under its Vision 2030 economic development plan. These include the development of the Red Sea
Project, with 50 hotels spread over 22 islands. Although not due for completion until the end of the
decade, the project will take in its first visitors in early 2023.
Venetian fees: Some major tourist attractions are experimenting with tourism fees and taxes to help
reduce crowds or fund infrastructure. From January 16th day-trippers to the ancient Italian city of
Venice and some of its islands will have to make a reservation at a cost of between €3 and €10 (US$3-
US$10), depending on demand. The long-threatened fee will not only cut crowds, it will also cut taxes

for resident Venetians. Overnight tourists will be exempt because they will already be paying for their
stay. Thailand and the Maldives introduced tourism fees in 2022, and London is also considering one.
Good sports: Sporting events will spur travel in 2023. China has pulled out of hosting June’s Asian Cup
football tournament, but it will ease its covid restrictions in order to host the postponed Asian Games
in September. Meanwhile, France will hope to convert the Rugby World Cup into a boost for its tourism
industry.
Gulf Cooperation Council and Saudi Arabian international tourist arrivals
GCC international tourist arrivals Saudi Arabia international tourist arrivals

(m, 2019) (m)
UAE Saudi Arabia Bahrain 2019 2020 2021 2022
Kuwait Oman Qatar 3.0
2.5
4 2
2.0
9
25
1.5
1.0
11
0.5
20 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: EIU.
prompt other countries to reimpose travel bans.

Key risk scenario: A new pandemic or
A widening of the Russia-Ukraine war could
war could upend travel
have an equally devastating effect. The war is
already affecting the tourism industry in several
The travel industry was the sector hardest hit by
ways: the loss of Russian and Ukrainian tourists,
the covid-19 pandemic, with international arrivals
restrictions on airlines and the use of airspace, and
and flights down by over 70% on 2019 levels in both
higher food and fuel costs. However, a wider war
2020 and 2021. A new pandemic, or even a new
would land a big hit to traveller confidence and
deadly variant of covid, would therefore have the
disposable incomes, as well as new limitations on
biggest impact on the sector’s recovery. It would
air routes.
deter China from reopening its borders, and could

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Automotive
outlook 2023

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GURGAON DUBAI

India Tel: +971 4 4463 147
Automotive outlook 2023

Key forecasts
• The automotive industry will remain vulnerable to global headwinds in 2023 including the energy
crisis, slower global demand and continued supply-chain problems.
• Global new-vehicles sales will remain flat in 2023: new-car sales will rise by 0.9% and new
commercial vehicle (CV) sales will fall by 1.3%.
• Sales of electric vehicles (EVs) will be the only bright spot, growing by 25%, but governments will
restructure their incentive schemes.
• Governments’ focus will turn to charging networks, which are inadequate to meet the expanding
EV fleet.
• Autonomous vehicles will take a leap forward, as UN regulators lift their speed limit.
Automotive sales will remain muted
New-vehicle sales will stall in 2023, especially in Europe and the US. We expect global new-car sales
to rise by just 0.9% globally, held back by squeezed consumer spending, high commodity prices and
production shutdowns caused by supply-chain disruptions. New-car sales in western Europe will
decline by about 3%, while they will fall by 2.4% in North America. Meanwhile, new CV sales will fall
by 1.3% globally, amid an expected recession in the Euro zone and slower GDP growth in the US and
China.
Overall, this means that, following a decline in 2022, new-vehicle sales will rise only marginally in
2023, led by growth in Asia, the Middle East, Africa and Latin America. As a result, global new-vehicle
Automotive sales in the slow lane

(new-vehicle sales by region; m units)
Passenger cars Commercial vehicles

80 North America Western Europe Eastern Europe
Asia & Australasia Latin America Middle East & Africa
30
60
25
20
40
15
20 10
0 0
2019 20 21 22 23 2019 20 21 22 23
Sources: national sources; EIU. *2022 and 2023 are forecasts.

sales in 2023, at 79m, will still fall short of pre-pandemic levels of 88m units. Our forecast will remain
vulnerable to considerable risks, including an escalation of the Russia-Ukraine war, possible energy
shortages in Europe and a chance that the global economy may slip into recession.
Incentives for electric vehicles will be restructured

Sales of EVs will be the only bright spot in 2023, growing by 25% year on year to 10.8m units.
Governments are getting innovative with their EV incentive policies, in order to encourage clean-
vehicle sales without too much cost and without benefiting high-income households. The US will offer
a US$7,500 EV tax credit at the point of sale on clean-vehicle purchases from January 1st 2023, but only
if the cars meet stringent eligibility criteria, including final assembly within North America. The US will
also remove a 200,000 vehicle cap per manufacturer, allowing Tesla, General Motors, and Toyota (which
manufactures locally) to benefit from the subsidies. The plan aims to encourage investment in local
production and limit government expenditure.
Meanwhile, China has extended tax breaks and Electric vehicle sales continue to soar
purchase subsidies available for buyers of new (sales of new plug-in EVs)
energy vehicles (NEVs) until the end of 2023. These Units (m) Growth (%)
12 120
breaks include exemptions from purchase taxes,
annual vehicle taxes and consumption taxes. The 10 100
French government is working on a subsidised EV-

8 80
leasing plan, in a bid to make EVs more affordable
for low-income households. However, from 2023 6 60
Germany will reduce EV incentives available for

4 40
battery EVs (depending on the price range) and will
remove subsidies for plug-in hybrid EVs. Norway 2 20
will also phase out tax breaks for expensive EVs

0 0
from the start of January 2023. 2019 20 21 22 23
Battery swapping and charging stations will expand, especially in China

The exponential growth in EV sales has led to problems with recharging networks, which governments
will need to address in 2023. In China, for example, the number of EVs on the road is set to double to
nearly 20m by 2024, but long queues at charging points are becoming common. As part of its 14th Five-
Year Plan (covering 2021-25), the Chinese government aims to deploy charging stations on all highways
connecting provinces by the end of 2023.
Automakers are also investing in recharging solutions, including battery swapping. Nio, an EV start-
up, is planning to upgrade its proprietary battery swap stations in 2023, enabling them to store more
batteries to suit different vehicle brands and voltages. It remains unclear if Nio’s stations will swap
batteries for non-Nio cars as well. India is also planning to implement a battery swapping policy in
the 2022/23 fiscal year (April-March), as part of its aim to electrify all new vehicles by 2030. The Indian
government will also offer financial incentives to companies setting up swapping stations, as well as
encouraging battery leasing.

Despite these incentives, charging will be a challenge in 2023. One problem is that regulators have
yet to put in place uniform battery standards, which would make it easier to find appropriate charging
points and swapping stations. End-of-life battery recycling is lagging too.
Automotive supply chains will remain a weak link

Although a slowdown in demand has made supply-chain blockages less acute, they will continue to
hold back production in 2023. Semiconductors will remain in short supply, with new capacity not due to
come into operation until 2024. Escalating tensions between Taiwan and China will pose another risk.
Automakers will also face challenges in acquiring metals such as nickel, cobalt, steel and aluminium. A
shortage of these metals will make it harder to assemble EV batteries. Even the supply of lithium, a vital
battery metal, could be affected by zero-covid policies in China, the world’s largest lithium refiner.
In order to cope with this challenge, governments are increasing local sourcing. The US will use the
CHIPS Act, passed in 2022, to spur domestic semiconductor production and research. The US has also
published a critical mining strategy to increase its local supply of rare earths and other minerals,thus
reducing its reliance on China. Rare earths are vital to battery production. Meanwhile, India is seeking
to change laws to allow private miners to extract lithium domestically, as well as seeking to acquire
lithium and cobalt mines overseas.
Europe’s biggest supply challenge will be the energy crisis. Some vehicle and parts makers are having
to cut production to reduce energy costs. They may also have to prepare for power cuts. Given close-
knit supply chains, this will have knock-on effects throughout the automotive sector.
Level 3 self-driving cars will hit the roads

The autonomous vehicle segment will take a leap in 2023, as level 3 cars hit the roads and level 4
vehicles undergo tests. Mercedes-Benz (Germany) will start offering its level 3 driving system, Drive
Pilot, in California and Nevada in the US in 2023. BMW’s long-awaited level 3 technology should be
on sale in its Series 7 sedan. Three US carmakers—Tesla, General Motors and Lucid—as well as South
Korea’s Hyundai and Kia, and Sweden’s Polestar, are also expected to launch level 3 vehicles in 2023.
With level 5 representing full autonomy, the jump to level 3 is a significant step. It will take cars from
what is effectively driver-assisted technology (such as Tesla’s Autopilot) to autonomy that does not
require full-time driver attention.These developments will come as UN regulations are amended to
extend the speed limit for level 3 vehicles from 60km/h to 130km/h from the beginning of 2023.
As for level 4, Germany is planning to start an autonomous driving project in 2023 using vehicles
manufactured by two EV makers: Mobileye (Israel) and Nio (China). The expansion of level 4 robotaxis
will also pick up pace in 2023. Motional (US) will launch robotaxis in the US, while Cruise (US) will
expand its offering in Dubai, UAE. Tesla is also expected to unveil its own robotaxi in 2023. Even so,
these level 4 cars will only operate in carefully controlled zones, with operators on standby to cope with
emergencies. Full autonomy remains some way off.

Vehicle autonomy reaches the tiping point

(levels of driving automation)
Automation The system The driver Existing examples
Automatic emergency
Provides momentary Must steer, brake and
Level 0 None braking; lane departure or
driving assistance accelerate
forward collision warnings
Provides continuous
Must be fully engaged
Driver
Driver assistance with either Adaptive cruise control;
Level 1 None in driving; steer or
support
support acceleration/braking lane departure assistance
brake
features
features OR steering
Provides continuous
Must be engaged with Highway pilot; several
assistance with both
Level 2 Partial driving; continually Level 2 models sold
acceleration/braking
monitor the vehicle commercially
AND steering
Handles all aspects of Must be ready to drive Honda Legend Sedan;

Level 3 Conditional
Automated driving when engaged as needed Mercedes Drive Pilot
driving
Drives under limited Is not needed in
Level 4 features High Not yet available
service areas designated areas
Level 5 Full Drives universally Is not needed Not yet available

Sources: SAE International; National Highway Traffic Safety Administration; EIU.
To watch
Union blues: Amid high inflation and a possible recession, the Detroit Three automakers—General
Motors, Ford and Stellantis North America (formerly Fiat Chrysler Automobiles)—will need to
negotiate a four-year contract for 150,000 blue-collar workers represented by United Auto Workers
(UAW), a trade union. This will not be easy at a time when US workers are restive about the cost
of living. General Motors will be hoping to avoid a strike similar to the one in 2019 that cost it about
US$3bn in lost earnings.
Agency models: Premium German carmaker Mercedes Benz plans to move away from franchise-
operated dealerships and introduce an agency model in its home market and the UK. The move will
turn its dealers into agents, who will offer a physical touchpoint for motorists. This will also allow the
carmaker to become the retailer and to enter into sales contracts with customers, giving it direct access
to data on consumer preferences and driving habits. The carmaker will also gain more control over the
final retail price, as well as flexibility to bundle online sales and physical sales.
Battery tech: QuantumScape, a US-based EV battery maker and supplier of solid-state batteries to
Volkswagen (Germany), will start testing 24-layer battery cells in 2023 - instead of the 16-layer cells
currently in use. A solid-state battery has several advantages over a lithium-ion polymer battery,
including higher energy density, which allows a battery EV to have a higher range. Rimac, a Croatian
EV start-up, is also working towards improving the energy density of its vehicles through a new battery
module that will use larger 46mm diameter cylindrical cells.

strikes demanding higher salaries that match

Key risk scenario: Geopolitical
inflation. Such movements could paralyse ports,
tensions, climate change and public
protests will cause more supply- freight services and railways, exacerbating supply-
chain blockages chain problems.
Supply chains are also vulnerable to increased
geopolitical tensions and climate threats. Further
Persistent inflationary pressures, caused by supply-
deterioration in China’s ties with the West—
chain disruptions and Russia’s invasion of Ukraine,
especially over Taiwan—could threaten the flow
are pushing up global inflation, which is at its
of semiconductors out of Taiwan, or of key battery
highest level since the 1990s. This could fuel social
elements and metals from China. Meanwhile,
unrest if inflation rises much higher than wage
a particularly cold winter could cause energy
increases. In an extreme scenario, protests could
shortages in Europe, where some vehicle and parts
push workers in major economies and employed
makers are already facing a need to cut production.
by large manufacturers to co-ordinate large-scale

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Consumer goods and
retail outlook 2023

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GURGAON DUBAI

India Tel: +971 4 4463 147
Consumer goods and retail outlook 2023

• Inflation will push up global retail sales by a robust 5% in US-dollar terms in 2023, but the lower
volume of sales and surging costs will weaken retailers’ profits.
• The rollout of automation technologies will offer opportunities to limit wage growth, which means
that retail employment is unlikely to return to 2019 levels.
• Online sales growth will slow, but the online share of retail will edge up to about 14% of global retail
sales.
• Inflation-wary consumers will prefer to shop at discount stores, helping these retailers to increase
their market shares.
• The economic slowdown in China, caused in part by its zero-covid strategy, will mean fresh
challenges for global luxury brands already affected by the loss of Chinese tourists.
Inflation is hurting shoppers and shops alike. EIU forecasts for 2023 show widening disparities
between retail sales in nominal and real terms. Persistently high inflation will lead to 4.8% growth in
global retail sales in nominal US dollar terms, but this headline rate is inflated by high prices. It masks
slowing growth in real terms, lower purchasing power and lower margins for retailers. However, there
will be some pockets of real-terms growth, mainly in middle-income countries in Asia and the Middle
East. Online retail sales will grow by 6.1%, slower than in 2020-22, but their share of the total retail
market will continue to increase.
High inflation will squeeze profits…

With global inflation forecast at 6.4% in 2023 and demand flattening, retailers’ profits will be squeezed
in 2023. They will not only be challenged by higher costs for raw materials and logistics, but also by
labour and energy costs. Retail wages have been rising faster than overall private-sector wages in many
countries; wholesale electricity rates have also surged over the past year (especially in Europe).
Some retailers will close stores, and the risk of retail bankruptcies will increase after a couple of years
of respite. At maximum risk will be debt-laden non-food retailers, as lower consumer purchasing power
will translate into lower discretionary spending. High energy costs, particularly for refrigerators, will
also put some food retailers in Europe at risk. Moody’s, a rating agency, recently downgraded the credit
rating for Iceland, a UK grocer.
….and retail jobs

One way retailers will try to protect their bottom lines in 2023 is by slashing labour costs. Retail wage
growth, which has been outpacing that of other sectors, will slow. Although we do not currently expect
massive layoffs in the sector, increased pressures on retailers’ margins will slow down new hires. Hopes
of the sector’s employment levels returning to pre-pandemic levels in 2023 are fading.
Many retail chains will also invest in automating their backend processes, reducing their need for
workers. By March 2023 Australian department chain Myer will deploy 200 autonomous mobile robots

with the capacity to process seven out of ten online orders. Japan’s Aeon will collaborate with British
retailer Ocado to build an automated warehouse in Japan by 2023 to manage stocks and basket goods
for online deliveries.
Online retail growth will shift to developing markets

Online sales will continue to rise, with year-on-year growth of 6.1% taking their share of global retail
sales to more than 14%, marginally exceeding the 13.9% share in 2022. However, sales growth will slow
in China, the world’s largest online retail market, as a result of its ‘zero-covid’ policies as well as high
youth unemployment, a weakening economy
and a government crackdown on technology
companies. Meanwhile, the West will be wading Online retail boom will move to developing
markets
through the cost-of-living crisis and a recession. (online sales; % change, US dollars*)
A growing middle class, increasing internet
Latin America Middle East & Africa Asia G7
penetration and policy focus on digitalisation 30
will make many emerging markets attractive for
25
retail investment. The Middle East and Africa and
Latin America will see the fastest pace of growth 20
in online sales in 2023, at over 20%, while Asia 15

will report a 12% increase. Amazon, a US online
10
retailer, plans to enter five new countries in 2023,
with South Africa, Nigeria and Colombia among 5
the candidates. There will also be opportunities
0
for marketplaces, logistics and payment service 2021 22 23 24 25
providers to enable Asia’s micro, small and Sources: Edge by Ascential; EIU. *2022-25 are forecasts.
medium businesses, such as Indonesia’s warungs,

to go digital.
Inflation will push consumers away from hypermarkets to discount retailers in

2023
In a reversal of the pandemic-era trend, big-box stores and hypermarkets will lose market share to
discount and convenience stores in 2023, as reduced purchasing power forces many middle-income
consumers to trade down. In inflation-ridden European markets, a shift in this direction is already
visible in the food retail market. Aldi, a German discount retailer, overtook Morrisons, a supermarket, in
September 2022 to become the fourth-largest grocery retailer in the UK. In France, the largest discount
grocers—including Aldi and Lidl—have expanded their market shares over the past year.
Similar trends are visible in other markets. Data from Placer.ai, which tracks retail footfall, shows
that in July 2022 (when US consumer price inflation was up by 8.5%) discounters and dollar stores were
the only retail category in the US to register growth in footfall. Meanwhile, two of the country’s biggest
retailers, Walmart and Target, registered declines. In South Korea, a surge in food prices is forcing many
restaurant-goers to pick up cheaper ready-to-eat meals from convenience stores.

Besides seeking lower price points, inflation-ridden consumers also tend to buy less but more
often. This would make trips to out-of-town hypermarkets and big-box stores more expensive as fuel
prices remain high. Some hypermarkets will react by moving closer to consumers, setting up smaller
“express” stores that can better compete with convenience stores. This will offer some opportunities for
commercial real-estate owners.
The economic slowdown in China will bring fresh challenges for luxury brands
The loss of Chinese tourists during the pandemic has been a blow for global luxury brands. However,
their sales returned to pre-covid levels in 2021, helped by demand from domestic Chinese buyers. In
2022, China’s zero-covid policies held back growth, although a rebound in Europe’s tourism industry
brought some compensation. However, 2023 will pose more challenges.
China’s consumer spending will be lacklustre as the government maintains its zero-covid policy
and a slowdown in important trade partners, such as the US and EU, weigh on the domestic economy.
China’s real-estate bubble, an important source of wealth for affluent Chinese, has been deflated by
government crackdowns and covid-19. Youth unemployment remains high and will constrain demand
from entry-level luxury buyers, an important customer base for luxury brands.
Other markets will struggle to offset Asia’s sluggishness. The region will account for nearly 18% of the
world’s high-net-worth population in 2023, with China contributing a third of the region’s total. Kering,
a French luxury giant, earns 34% of its revenue from the Asia-Pacific market, excluding Japan. Tourist
spending in Europe, which has been a silver lining this year, may not offer as much support next year.
Whereas pent-up demand has driven a tourism revival in 2022, growth in global tourist arrivals will slow
significantly in 2023.
Asia will account for nearly 18% of global high-net-worth households in 2023
(number of HNWHs >US$1m expected in 2022, '000)
Canada (1,503)
UK (1,396 ) Germany (775)
Japan (1,878)
US China (2,483)
Switzerland (608)
(30,280)
Hong Kong (1,297) Taiwan (849)
Australia (765)
Sources: EIU.

To watch
Plastic purge: Retailers will need to find other ways to package their goods in Spain, which will enforce
a ban on plastic packaging for fruits and vegetables from January 2023 and (along with Italy) slap plastic
taxes on non-reusable packaging. From July 2023 Dutch consumers will have to pay extra for single-use
plastic cups and food packaging. Canada will expand its ban on making and importing single-use plastic
products, due to come into effect by the end of 2022, by banning their sale from December 2023.
Green fashion: Spain’s Inditex, the world’s biggest fast-fashion company, aims to stop using single-use
packaging by next year, as well opting for more sustainable fabrics. Zalando, a German online fashion
retailer, aims to only sell brands that meet certain sustainability standards. Regulators will force the
pace: Germany’s supply-chain regulations, which demand that large companies vet for human rights
and environmental violations, will pose a particular challenge for fashion retailers.
Better protection: Consumer brands and online sellers will face a stream of new privacy, competition
and data regulations in 2023. In January, Finland’s Consumer Protection Act will force online sellers to
offer more transparency into their pricing and discounting strategies. In the US, five states will roll out
data-privacy laws that will affect the way that businesses collect and process consumer data. India
plans to launch a revised data protection bill in early 2023. Businesses will need to recalibrate their data
collection and storage methods to comply with new laws.
political and economic upheavals and increased

Key risk scenario: Extreme weather
poverty.
fuels global food insecurity
A colder than expected winter in Europe could
also have an impact on food production, especially
The two regions most vulnerable to food insecurity
if it is followed by another hot summer of drought.
in 2023 will be developing Asia and the Middle East
An escalation in the energy crisis would worsen
and Africa. Countries in these regions are heavily
the ongoing fertiliser crisis, further pushing up
dependent on food imports and quite exposed to
food prices in Europe. Production of fresh produce,
climate vulnerabilities, and they also have limited
especially foods requiring temperature-controlled
scope for fiscal support. If weather conditions
environments, will be affected in colder countries.
are even worse in 2023 than they were in 2022, an
Mounting costs will push several mom-and-pop
inability to afford or access food will lead to wider
retailers and foodservice outlets out of business.

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Energy outlook 2023

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ENERGY OUTLOOK 2023
Energy outlook 2023

• Global energy consumption will grow by only 1.3% in 2023 amid a slowing economy.
• Despite decarbonisation targets, coal consumption will grow marginally to compensate for gaps in
gas supplies.
• More extreme weather events will force many countries to fall back on fossil fuels, delaying the
energy transition.
• Renewable energy consumption will surge by about 11%, with Asia leading the way, but investment
will weaken.
• The energy crisis will prompt some governments to backtrack on efforts to phase out the use of
nuclear power.
Energy consumption will see its second year of sluggish growth

With the global economy slowing and energy prices remaining high, total energy consumption across
the 69 countries covered by EIU’s Industry service will rise by just 1.3% in 2023. This will be the second
consecutive year of sluggish consumption growth. In 2022 we estimate that demand grew by only 0.9%,
amid record-high prices and a contraction in gas and oil supplies from Russia.
A reduction in energy supplies is also likely in 2023, as OPEC+ members are willing to cut production
to prevent oil prices from dropping too far. Oil and gas output from Russia is also expected to fall
further, with EU sanctions on oil entering full force by end-2022. Despite pricing pressures from supply-
side issues, fears of a global recession are pulling oil prices down. We forecast an average price for Brent
crude of US$89.6/barrel (b) in 2023, down from US$91.7/b previously.
Asia will lead energy demand growth
Natural gas consumption (mtoe) Oil consumption (mtoe*)

Asia North America Europe 2,000
Latin America Middle East & Africa
1,000
1,500
800
600 1,000
400
500
200
0 0
2019 20 21 22 23 2019 20 21 22 23
Sources: EIU; © OECD/IEA 2022 [www.iea.org/statistics]. *million tonnes oil equivalent †Europe totals exclude Russia.

ENERGY OUTLOOK 2023
Natural gas usage will be flat, but coal and oil consumption will grow
Global natural gas consumption will remain flat in 2023 as it continues to decline in Europe (-1.7%)
and remains flat in North America, offsetting gains in the rest of the world. We do not expect gas
consumption in Europe (excluding Russia) to
return to pre-war levels during our forecast period Renewables consumption will remain strong
of 2022-31. However, gas demand in Asia will (% change year on year)
rise by 2.4% in 2023, with the region on track to Hydro Non-hydro

25
become the largest global market for natural gas
(surpassing North America) by 2027. 20
Coal consumption will benefit from increased
policy focus on energy security, growing for the 15
third consecutive year in 2023, although only

10
marginally. Oil consumption will grow by 1.4%,
mainly supported by Asia where usage will expand
5
by 2.9%. On the contrary, oil demand in Europe
will contract by 1% as economic activity slows 0
down and the EU embargo on Russian oil imports 2019 20 21 22 23
Sources: EIU; © OECD/IEA 2022 [www.iea.org/statistics].
becomes fully effective.
Growth in renewable energy will stay strong

Showing a much brighter outlook than fossil fuels, solar and wind energy consumption will surge
by 11% during 2023 (although from a smaller base) as more projects come online. We forecast that
solar and wind capacity addition will remain strong during our forecast period, prompting renewable
energy consumption to grow at an annual average rate of 10% during the next ten years. Asia is and will
continue to be the world’s biggest market for renewable energy investment, with the lion’s share going
to China, India, Japan and South Korea.
However, the commodity price boom will divert some investment towards fossil-fuel projects.
Higher interest rates will also increase the cost of financing renewable energy projects, slowing down
the pace of the energy transition. Financial support for energy transition projects in developing
countries could further diminish, disproportionately affecting poor and vulnerable geographies.
Energy crises caused by extreme weather events will encourage coal usage
Increasing frequency of extreme weather events, such as droughts, heatwaves and hurricanes,
will have an adverse impact on countries’ energy systems. Dry weather in much of the northern
hemisphere in 2022 led to drought situations in major river systems such as the Yangtze (China),
the Danube and the Rhine (Europe), and the Colorado River (US), severely impacting hydro power
generation, which provides almost half of low-carbon electricity generation globally. Heatwaves could
lead to blackouts as they push up peak power demand, while diminishing productivity of power plants;
hurricanes could damage energy infrastructure.
With meteorologists forecasting more weather events—including a rare third consecutive year of
La Niña—we expect more short-term power crises around the world in 2023. Countries will keep falling

ENERGY OUTLOOK 2023
back on fossil fuels to cope with such scenarios. China and India, where hydro power accounts for more
than 10% of total electricity generation, are most likely to do so. Another example is Brazil, which relies
on hydro power for 60% of total power generation.
Developing countries will face an uphill road to climate finance

A volatile economic and geopolitical environment, plus recent extreme weather events in Europe and
the US, are likely to shift public sentiment in those countries towards channelling climate adaptation
funds for domestic needs before committing to assist other countries. This will affect availability
of global climate finance. Developing countries, such as India and Indonesia, will struggle to secure
meaningful commitments from the rich world to finance their energy transition. Consequently, these
countries will be slower to wean themselves off dirty fuels such as coal, and the divergence in energy
transition between the developed and the developing world will widen.
A comeback for nuclear energy

The energy crisis will prompt some governments to rethink their plans to phase out nuclear power, as
sentiment shifts in favour of reliable energy supplies. Japan, which idled its nuclear plants in the wake
of the Fukushima Daiichi disaster in 2011, plans to restart seven nuclear reactors by the summer of 2023.
Including these seven, Japan currently has 23 commercially operable but offline nuclear reactors. In all,
the country’s reactors have a combined installed power-generation capacity of 21.7 GW. We do not rule
out the Japanese government announcing the restart of more nuclear reactors during 2023.
A more striking example is Germany. After the Fukushima disaster, Germany started shutting down
its nuclear power plants, with three remaining ones set to close by the end of 2022. However, energy
security challenges have forced the country to make a u-turn on its nuclear policy. Recent comments
by the government suggest that the country could extend the lifespan of the remaining plants. Other
countries, such as India and China, are also likely to renew focus on nuclear energy in 2023.
To watch
LNG terminals: Germany, which is suffering from its earlier reliance on piped Russian gas, will see its
first regasification unit come online in early 2023. The offshore LNG terminal at Wilhelmshaven will
have the capacity to handle 7.5bn cu metres (bcm) of natural gas per year. Another under-construction
terminal at Brunsbüttel is expected to add an additional 3-5 bcm per year of import capacity. The two
facilities together could meet more than 10% of Germany’s annual gas demand by 2023.
Iran negotiation: A tight crude oil market has revived talks over a nuclear deal with Iran, a major crude
oil producer with spare export capacity. However, the negotiations, which will be closely watched, are
likely to stretch into 2023, particularly if Iran’s government cracks down hard on current civil protests.
Despite a recent flurry of diplomatic activity, we do not expect Iran and the US to reach a deal that
would allow some curbs on production and exports to be lifted. With no additional supply from Iran
likely to be made available in 2023, the global oil market will remain tight.
Nigeria’s new refinery: A 650,000-b/day mega-refinery and petrochemical complex is currently
under construction in Nigeria. The Dangote refinery, which will cost an estimated US$19bn, is expected
to reach full production in 2023. The facility will be the largest single-train refinery in the world and,
once in operation, will make it possible for Nigeria to drastically cut its import bill for refined products.
ENERGY OUTLOOK 2023
However, the refinery will sell locally only if prices are market led. A scaling-back of Nigeria’s fuel
subsidies in 2023 will therefore be necessary to allow the refinery to supply the domestic market at
a profit.
Energy-intensive industries such as chemicals,

Key risk scenario: A cold winter could
steel, glass and fertilisers would be worst hit,
exacerbate Europe’s energy crisis
with knock-on effects further down the supply
chain. Failure to conserve gas in the upcoming
A colder-than-normal winter will push household
winter months will lead European governments
gas consumption above expected levels, likely
to increase coal-fired power generation, hindering
derailing Europe’s plans to reduce gas consumption
the region’s efforts to combat climate change.
during the next months. In the absence of Russian
Additionally, energy shortage in Europe will keep
supply, increased household demand will dry up
gas prices higher for longer than expected in
storages, prompting the rationing of energy to the
2023, further increasing the import bills of many
industrial sector. This will worsen the economic
commodity importers, especially in Asia and Africa.
recession.
Europe rushes to build LNG import capacity
All units in bn cu metres Finland

60
LNG terminals' annual
5 regasification capacity
Planned & under construction

Estland
Operational
Final capacity by 2030

Lettland
RUSSIA
Litauen
Niederlande
Ireland UK Poland
Germany
Belgium
France
Croatia
Portugal
Italy Albania
Spain
Greece
Turkey
EU Non-EU
Malta
500 km
Sources: Gas Infrastructure Europe; EIU. Cyprus

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• Weakening economic output and rising interest rates will lead to more difficult conditions for banks,
insurers and fund managers in 2023 than in the past two years.
• The impact will be particularly acute in North America and Europe, where governments will offer
support. The environment will be tough in Asia as well, although policy rates will rise by less.
• Heavily indebted developing countries will find it harder to refinance foreign debt, driving some
to default or require rescues to avoid it. However, the IMF will continue its lenient treatment of
economies requiring its financing programmes.
• The current capital-market crunch will hobble a wide variety of loss-making fintech challengers that
sought to outflank incumbents in banking, payments and other activities.
Global financial firms will face tougher conditions in 2023 in an environment marked by slowing
economic growth, spiking prices, unevenly rising interest rates and sharpening international political
tensions. Fortunately, firms in the industry have greatly improved their resilience over the past decade
by bolstering their capital and liquidity positions, and leaving behind non-core activities and markets.
As a result, most should prove capable of riding out the stresses arising from this latest economic
downturn. In the longer term, the industry will benefit from enduring trends towards greater use
of digital services, improved financial inclusion and expanding needs for savings to cover ageing
populations and investment to confront challenges like the green transition.
Arrears and debt defaults will rise, but governments will offer support
Rising rates generally have positive impacts for financial firms, as they lead to wider interest-rate
spreads for banks and better investment returns on the portfolios of insurance companies and fund
managers. However, they also slow the overall economy and reduce the cash available to households
and firms, while trimming demand for now-more-expensive credit. According to our forecasts,
financial firms in the west have enjoyed some widening in interest margins recently, but these will
soon narrow again as demand wanes for credit
for consumption and investment. Meanwhile,
Lending will continue to rise in 2023 margins will remain stable in China, Japan and
(total lending; US$ trn)
2022 2023 most of the rest of Asia.
0 20 40 60 80 The toxic combination of weakening
US economies and rising interest rates may lead to a
rise in arrears and defaults on debts. There are few
China signals so far indicating such distress, setting aside
the special case of China’s property developers
Japan
who took advance payment for future apartments
Germany and borrowed heavily in US-dollar debt on
Source: EIU. overseas markets.

In any case, policymakers may step in, as they did during the pandemic, to support household and
company borrowers who would otherwise struggle to repay debts. For example, lawmakers in Europe
have outlined plans to cap or subsidise energy costs. This will leave borrowers in a better position to
repay loans, while shifting rising costs to the public exchequer.
Sovereign debtors and asset markets will remain under pressure

One class of borrowers—heavily indebted developing countries—will have to proceed with only a
limited safety net. Tightening financial conditions and rising costs on US-dollar and euro debt will make
it more difficult and costly for them to roll over their debts. Small economies like Sri Lanka and Zambia
have already defaulted (as did Russia in special circumstances), and larger economies could soon come
into distress.
Moreover, China has emerged as an important creditor in the past decade but remains reluctant
to participate in the types of debt-relief efforts used by OECD creditors. This could make it more
difficult to reach compromises on debt reduction.
No more easy money On a positive note, the IMF under its current
(policy interest rates*; end-period; %) management has taken an accommodative
US Japan Euro zone China approach to debt-burdened countries,
4
provided they outline some path towards fiscal
3 sustainability.
Markets for stock and bonds tend to anticipate
2 economic recoveries, generating financial
conditions and rising asset prices well in advance
1 of official output figures. However, market
participants first want to see a future turning

0
point, such as a pause in interest-rate hikes by
the US Federal Reserve (Fed, the central bank).
-1
2018 19 20 21 22 23 This will not take place so long as price pressures
Source: EIU. *2022-23 are forecasts. remain very high in the US.
Financial challengers will stumble badly

The incumbents of the financial industry will suffer in 2023, but their upstart rivals - including fintech
companies - are likely to fail in large numbers. Funders such as venture-capital and private-equity
firms are insisting in the current market environment that financial challengers stop making losses and
chart a path to profitability. This will prove impossible for some upstarts in consumer credit, payments
and robo-advised fund management. Others will have to sharply curtail their expenses, including for
marketing and customer acquisition. The culling of competition will ease pressures on established
banks, insurers and fund managers.
Meanwhile, the recent sour turn in the markets has deflated a wide range of frothy financial activities
that thrived in the bull run. The air has gone out of the cryptocurrencies and decentralised finance
that aimed to displace banks and payments firms. Blank-cheque companies intended to outflank
investment banks in bringing firms to the public markets, but instead they are being forced to return
funds to investors. Non-bank consumer lenders are succumbing to rising levels of borrower defaults.
Taking a longer view, a number of enduring trends will sustain most financial firms. Most will enjoy
a tailwind from citizens’ rapidly rising use of formal financial services, increasing needs for savings for
ageing populations and the huge financing needs for policy objectives such as decarbonisation and
infrastructure improvements. A shift to digital strategies focused on mobile and online services will
allow firms to close physical locations and trim staff expenses.
To watch
Exiting Mexico: Citigroup is likely to sell its Mexico retail banking franchise, which was once a
crown jewel in its globe-spanning network. The US banking group has spun off many of its far-flung
operations in recent years as international lenders trim their footprints.
Fresh Basel: The final implementation dates for Basel III (also known as Basel IV) arrive on January
1st 2023, after having been delayed by one year due to the pandemic. Customers will not notice the
changes, which require new government regulations and will change the way that banks account for
base capital, credit risk using standardised or internal models, as well as mandatory disclosures.
China’s e-yuan: China is likely to expand its pilot use of its central bank digital currency (CBDC),
dubbed the e-yuan, and may implement it countrywide. The country is the most advanced among
major economies in pursuing CBDCs, but has yet to devise a way to use it in international trade.
This led to substantial losses, but the costs

Key risk scenario: Rising geopolitical
would be much larger if China seized Taiwan in
tensions
2023 (not our core scenario). US bank executives
told a congressional committee in September 2022
Following the outbreak of Russia’s war in Ukraine
that they would comply with any official demand
in early 2022, a coalition of democratic nations
to exit their China operations. Financial firms from
imposed sanctions on Russia, which in turn
Japan and elsewhere would also inevitably shutter
imposed exchange controls and other measures
their China units. Developed-country financiers
that locked capital inside its economy. As a result,
have only a small footprint in China, but have
many western banks and insurers moved to sell
coveted the country’s large and growing financial
their local operations, often at fire-sale prices, or
markets. At the same time, China’s banks, which
simply wind them down. Other firms continue to
have expanded overseas in recent years, would be
operate under local management and without
frozen out of the economies of countries backing
access to any funds. Authorities in western Europe
Taiwan in any conflict.
seized and closed Russian firms’ operations across
the continent.

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Gesundheitswesen
outlook 2023

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Healthcare outlook 2023

• Healthcare spending will fall in 2023 in real terms, given high inflation and slow economic growth,
forcing difficult decisions on how to provide care.
• Digitalisation of the healthcare system will continue, but the use of health data will come under
stricter regulation in the US, Europe and China.
• Patent cliffs for key drugs and measures to control pharmaceutical pricing in the US, India and
elsewhere will force some major pharma companies to spur growth through deals.
• Supply-chain disruptions will continue to push up drugmakers’ costs, despite investment in more
localised pharmaceutical production.
Healthcare spending growth will fail to match inflation

The covid-19 pandemic forced governments to spend heavily on rolling out vaccination programmes
and investing in healthcare infrastructure and staffing. However, government plans to maintain or
increase spending in order to tackle a backlog of non-covid care and resolve staffing issues have been
upended by the global economic slowdown. EIU expects total healthcare spending (public and private
combined) to rise by 4.9% in nominal US-dollar terms in 2023, propelled by higher costs and wages.
However, spending will fall in real terms as it fails to keep pace with inflation. We estimate that there
will have been a similar pattern in 2022, meaning that 2023 will be the second successive year of real-
terms funding declines.
The gap between spending and costs will be
most acute in Europe, as well as in developed
Global healthcare spending will fall in Asian countries such as Japan and South Korea.
real terms
This will force healthcare providers to make
(% change, year on year*)
some difficult decisions about how to provide
Nominal growth, US$ Real growth
15 care, cutting non-essential services and pushing
up waiting lists. OECD data suggest that after

10
the global financial crisis of 2008-09, spending
5 on preventive care and pharmaceuticals was
squeezed the most, and we expect this pattern
0 to be repeated. Even so, we expect recruitment
and retention of healthcare staff to be difficult as
-5
wages also fall in real terms. However, there will
be pockets of strong growth in the healthcare
-10
2019 20 21 22 23 sector, particularly in the Gulf countries, which are
Sources: World Bank; OECD; EIU. *2022 and 2023 are forecast. benefiting from high oil prices.

Regulators will monitor the use of health data in 2023

From maintaining electronic medical records to launching online health apps, the digitalisation of the
healthcare sector will remain a key trend in 2023. However, concerns over protection of health data will
increase. The EU aims to invest €220m (US$220m) between 2023 and 2027 in the development of the
European Health Data Space, a cross-border digital platform through which people can control their
own electronic health data.
The aim is to ensure data privacy, building on the EU’s General Data Protection Regulation, while
making the bloc’s data more interoperable and accessible. The UK has a similar action plan that would
centralise data storage and protection, while allowing clinicians and researchers to access it remotely.
Such initiatives are likely to be copied elsewhere, after the World Health Organisation (WHO) pledged
to partner with the EU in 2023 to carry out the plan.
Protecting health data is easier in countries dominated by well-regulated public healthcare
systems, however. The US, with its system of competing private healthcare companies, will face a
bigger challenge in 2023 as it tries to extend its data protection laws under the proposed American
Data Privacy and Protection Act. China will also step up enforcement of its health data protection
regulations following the surge in use of online health apps during the pandemic.
Life expectancy will recover fully in 2023

According to The Economist’s excess death tracker, the covid-19 pandemic has so far killed around 22m
people worldwide. Even official statistics, which put covid deaths at 6.5m, suggest that covid-19 is the
fourth-largest cause of death on record. The UN calculates that by 2021 the disease had cut 1.7 years
off global life expectancy, reducing it to 71.1 years. This was the first fall since 1959, at the height of the
Great Chinese famine. While a recovery probably began in 2022, the UN calculates that 2023 will be the
year when life expectancy first exceeds 2019 levels.
One of the biggest factors driving life expectancy is childhood immunisation, which was disrupted
by the pandemic. There will be good news on this front in 2023, as healthcare systems and logistics
return to normalcy. Malaria vaccines will be the next frontier. Mosquirix, developed by GlaxoSmithKline
(UK), will be used more widely across Africa in 2023, but there are also hopes that R21/Matrix-M, a more
effective malaria vaccine developed by Oxford University, will gain regulatory approval. But there is no
room for complacency. The WHO had hoped to eradicate polio in 2023 under its 2030 agenda, but the
disease is currently seeing a revival thanks to low vaccination uptake.
Pharmaceutical and biotech companies will see margins narrow

The combination of slower healthcare spending and high inflation is already forcing a reckoning
for small biotech companies. As funding dries up after an unprecedented boom, many are cancelling
research programmes or laying off staff. In 2023 the pressure will extend to pharmaceutical companies.
Although we expect global pharmaceutical sales to rise by 5% in US-dollar terms, much of this growth
will reflect higher input costs, while regulators will push down on pricing. The US, which accounts
for one-third of global sales, will use the Inflation Reduction Act to allow its public health funds to
buy cheaper medicines. China’s steady centralisation of its drug purchasing system will make price
negotiations tenser there.

2023 is also a key year for patent expiry, after

Asia’s share of pharma sales will rise
several years of lull. In particular, AbbVie (US)
(pharma sales; US$ bn*)
will lose market exclusivity on its blockbuster
North America Western Europe Eastern Europe
anti-inflammatory, Humira, the world’s best- Asia Latin America Middle East & Africa
selling drug. Januvia (sitagliptin), a diabetes drug 1,600
produced by Merck (US) will also lose market 1,400
exclusivity in the US. Although the value of 1,200
global patent expiries will not peak until 2028, 1,000
the prospect of a drop in revenue will prompt 800
drugmakers to dip into the market with bolt- 600
on acquisitions, especially given that market 400
valuations for their targets will be low. Another 200
key driver for mergers and acquisitions will be 0

2019 20 21 22 23
the pivot away from covid-19 vaccines, with Source: EIU. *2022 and 2023 are forecast.
drugmakers such as Pfizer and Moderna keen to
diversify their drug portfolios.
The energy crisis

Supply-chain disruptions will continue for the pharmaceutical industry in 2023, but the energy crisis will
lend a new twist. During the pandemic, lockdowns (particularly in China) contributed to logistics and
production problems that particularly affected shipments of active pharmaceutical ingredients (APIs).
Governments reacted by encouraging reshoring (the practice of bringing previously exported business
operations back from overseas). India, which imports 70% of its APIs from China, is investing US$1.3bn
into domestic API production. The EU and US also encouraged companies to reshore production for
APIs and other supplies, despite higher domestic costs.
However, the Russia-Ukraine war has caused an energy crisis that threatens these reshoring plans,
particularly in Europe. Generic drugmakers in the EU warn that ultra-high energy costs, combined with
the possibility of power cuts, may make it impossible to produce APIs and medicines locally. Medicines
for Europe, a lobbying group, warns that raw material costs have gone up by 50-160%, and is pushing
for equivalent price rises. Rising labour and raw material costs elsewhere could also change the sums as
drugmakers balance their need for secure supply chains against their desire for profits.
To watch
Genomic data: The UK’s Genomics England aims to gather genomic data from up to 100,000
newborns in 2023 to help research into rare diseases. The government research body has already
reached a goal of sequencing 100,000 adult genomes, and has now set a new target of 500,000 as it
builds up its database for research.
Finland decentralisation: After multiple attempts, in July 2021 Finland passed a major healthcare
reform that will shift healthcare provision from municipalities to 21 welfare regions. It will gradually
come into force by January 2023 and seeks to make healthcare provision more uniform while boosting
productivity.

African vaccines: BioNTech (Germany) units will open in Rwanda and possibly Senegal to produce
vaccines for covid-19. South Africa will also see Biovac start producing Pfizer/BioNTech vaccines
commercially, while Afrigen, backed by the WHO, hopes to start clinical trials of its own covid-19
vaccine next year.
A new covid variant would pose a challenge

Key risk scenario: New variant of
for the world, but China faces its own hurdle
coronavirus, or another infectious
disease even if Omicron is the last variant. We expect the
government’s zero-covid policy to persist well into
2023, partly because it will be difficult to come up
Jeffrey Barrett, former head of the Covid-19
with a good exit strategy. Whereas the zero-covid
Genomics UK Consortium, recently voiced a
strategy has dampened economic growth, lifting
careful hope that the Omicron variant may be the
restrictions entirely could quickly fill China’s 50,000
last for covid-19, given that it has proved so stable.
intensive care unit beds. In May 2022 a Fudan
However, he admitted that there is still room for
University study published in a UK-based journal,
surprises. Even Omicron itself is mutating, with the
Nature, found that without mobility controls the
latest version—BA.5—able to overcome previous
Omicron variant of the coronavirus could cause
immunity. Moreover the potential for another
1.6m deaths in China over six months. We expect
(non-covid) virus or other pathogen to spread
China to undertake a renewed push for vaccination
globally has increased as global travel restarts.
in 2023, probably with a domestically produced
The spread of the monkeypox virus is just one of
mRNA vaccine.
several warnings that will keep researchers vigilant
in 2023.

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Technology and
telecoms outlook 2023

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Technology and telecoms outlook 2023

• The metaverse will not become mass-market in 2023, but this will not stop heavy investment in the
technology. The drive to standardisation and the battle with web3 will be at the forefront.
• Artificial intelligence (AI) will continue to develop, after several breakthroughs in 2022, but will
encounter challenges from new regulations in key jurisdictions.
• Semiconductors will continue to be a geopolitical tool between the US and China, involving many
other countries. Some companies producing the most advanced products and equipment will
benefit.
• Asian telecommunications companies will continue to look for consolidation in 2023. Mobile
markets with four or more mobile network operators, such as Sri Lanka, Japan and India, are the
most likely to secure deals.
Mobile and broadband subscriptions will continue to rise in 2023, while fixed-line connections will
continue their decline. The technology and telecoms sectors have so far weathered the pandemic
storm effectively, but new macro headwinds—from weaker economic growth and higher inflation—will
have an impact next year. Amid such a backdrop, here are some of the key trends to watch for in 2023.
Metaverse will not become mainstream, but will receive heavy investment
The metaverse will not become mainstream in 2023, but it will still be at the forefront of tech innovation
and investment. We continue to define the metaverse as immersive online platforms that use
augmented and virtual reality technologies to enable users to socialise, work, play or shop virtually.
The metaverse and web3 are different
Metaverse Web3
From web 1.0 (reading) to web 2.0

From PCs to smartphones to augmented
Evolution (reading and writing) to web3 (reading,
glasses and headsets
writing and owning)
Core principle Immersive and virtual world Decentralisation, trustless environment
Key technologies Augmented, mixed and virtual reality Blockchain, crypto assets (NFT, DAO...)
Users in charge as opposed to corporate

Competitive Big companies and siloed /different entities, with nobody having a dominant
landscape metaverses possible position
Source: EIU.

New devices, whether augmented glasses or virtual reality (VR) headsets, will be launched in 2023,
driving development of the overall ecosystem. They will include an Apple headset that is likely to offer
augmented reality rather than full VR.
The tech industry will focus on standards to ensure that there are rules in place to allow for
interoperability and interconnectedness of different metaverse platforms. It will also focus on creating
products for industry and enterprise clients, such as advertisements for virtual forefronts, digital twins,
and new types of education and learning services.
The metaverse will also prove to be a battleground for web3—the two, while often interchanged, are
not the same. Web3 is an entirely new framework based on blockchain and crypto assets whose core
principles are decentralisation and diffuse ownership among individual users as opposed to corporate
entities; as such it can operate outside of the metaverse). Centralisation has always occurred in the past
with new technologies, so the metaverse is also likely to happen in a centralised manner, but web3 will
continue to gain ground as a potential alternative in the coming year.
Developments in AI will come hand in hand with regulations

Artificial intelligence (AI) has seen some major developments in 2022—AlphaFold, an AI programme
designed by DeepMind (Alphabet), has proven capable of breaking down the structure of a protein,
underscoring the role of technology in scientific progress. AI models, which are trained on unlabelled
data and capable of performing different tasks, and large language models, which learn from billions of
words and phrases, will continue to evolve and provide solutions for multiple tasks across industries.
But there is a debate as to whether these deep-learning models are too limited to attain human-like
intelligence (if it is attainable), or whether there needs to be the development of other paradigms, such
as ones where the context and the entire environment take the lead.
Although this debate will continue into 2023, that year will also be one of AI regulation. The EU is
likely to push its own AI Act, which will seek to ban high-risk use cases before they enter the market,
as opposed to taking a wait-and-see approach. This is in contrast to the US model, which focuses on
innovation rather than regulation, although even the US Federal Trade Commission is pushing for
companies to be held accountable for discriminatory algorithms. China will also continue to focus on
algorithms, with greater scrutiny on how companies design and use them.
Chips face market and geopolitical challenges

There will be two main semiconductor-related challenges in 2023. From a market perspective, there will
be a shortage of certain components and a glut of others, longer lead times for the most sophisticated
machinery, and increasing demand for custom rather than mass demand chips, all of which will impact
the competitive landscape. Some companies will be major winners, such as Arm, whose blueprints are
used in many designs, and TSMC, which can build the most advanced chips. Others will lose out, such
as Intel, which is still lagging behind the leaders in manufacturing and whose traditional designs will be
under even greater pressure. In the longer term, demand for chips will remain strong, even if traditional
products such as PCs and smartphones plateau, because of the demand for digital transformation and
the rise of the metaverse.

Geopolitically, semiconductors will continue to be the key element in the US-China tech supremacy
battle. The US will continue to restrict China’s access to key technologies, while China will double down
on its attempts to be self-reliant. This will increasingly involve other countries, as they will need to
make a choice between the two nations. Russia, having been banned from buying advanced chips since
its invasion of Ukraine, and facing unprecedented sanctions on a country-level, will look to procure
some by any means necessary.
More telecoms operators in Asia will seek consolidation

Even as revenue growth slows, telecoms operators in Asia will need to invest in both 5G and fibre
networks. This is why we expect that they will look for consolidation across their regional operations in
2023, especially in markets with four or more players. The trend started in 2022, where deals involving
companies such as CK Hutchinson (Hong Kong) and Axiata (Malaysia) were announced in Indonesia,
Thailand and Malaysia.
We forecast that companies in Japan and Sri Lanka (both four-player markets) will look for a similar
way to grow inorganically in 2023.
• The ongoing economic distress in Sri Lanka has already led some companies to report losses since
the first quarter of 2022. Rate rises implemented in 2022, increased telecoms levies and an ongoing
SIM card registration drive will slow down cellular subscription in 2023, and companies may consider
consolidation.
• Japan could also go back to being a three-player market as it was until 2020, when Rakuten, a low-
cost player, entered the market. The new entrant’s performance has worsened since May 2022 as
its promotional free plans have ended. Other incumbents—SoftBank, NTT and KDDI—will look for
ways to balance revenue decline and investment in 5G expansion and 6G trials in 2023.
Consolidation will not just involve private operators, but also public ones. For instance, the Indian
government could renew its efforts to merge debt-ridden BSNL (mobile) and MTNL (fixed) in 2023.
To watch
EU clout: The EU’s Digital Markets Act, which focuses on making the largest technology companies
gatekeepers with specific obligations aimed at boosting competition, could be enforced as early as the
spring of 2023. Other rules, focusing on data and AI, could also become laws this year, strengthening the
EU’s position as the global tech regulator.
Data deals: A March 2022 deal on US-EU data transfers will be ratified in 2023, granting a new legal
framework for transatlantic data flows. As with its previous iterations, which were eventually invalidated
because of the incompatibility between US surveillance rules and EU privacy rights, we expect a lawsuit
to reach the European Court of Justice, which will rule on the legality of the deal in 2025.
Ad-supported tiers: Both Netflix and Disney will start rolling out their ad-supported plans in key
markets from late 2022, but the bulk of the roll-out internationally will happen in 2023. Advertising
will increasingly come to streaming as companies look to boost their revenue and consolidate their
customer bases.

Mobile markets in Japan and Sri Lanka hold potential for consolidation
(number of mobile network operators)
Japan
China
Pakistan South Korea
India Taiwan
Hong Kong
Vietnam
Philippines
Thailand
Sri Lanka Malaysia
Singapore Indonesia
Austral ia
Number of MNOs
Three
Four
Five New Zealand
Source: EIU.
attacks a day. Regulators will have an increased

Key risk scenario: Inter-
role going forward, with the focus on mandatory
state cyberwar cripples state
infrastructure in major economies reporting and critical infrastructure.
Indeed, infrastructure and healthcare systems
will be extremely vulnerable to cyberattacks, as the
Cyberwar can have a major impact on the global
2020-21 attacks on Colonial Pipeline and Universal
economy, especially if it involves major players.
Health Services (both US) showed. Financial
A major short-term issue is the increased risk
vulnerability will be an increasing concern, too,
of cyberattacks as more and more companies
after Lloyd’s of London, which underwrites
undertake digital transformation and become
reinsurance for many commercial insurance plans,
connected, increasing the attack surface for
said that it would require an exclusion for state-led
hackers. The Norwegian sovereign fund has
cyberattacks from March 2023. This highlights the
recently highlighted that it suffers three major
rising cyber risks from the Russia-Ukraine war.

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We specialise in:
Contact us

GURGAON DUBAI

India Tel: +971 4 4463 147

• Global tourism arrivals will rise by 30% in 2023, following 60% growth in 2022, but they will still not
return to pre-pandemic levels.
• The economic downturn, sanctions on Russia and, above all, China’s zero-covid strategy will be
among the factors weighing on the industry.
• Hotels, restaurants and airports will struggle to cope with labour shortages, wage demands, and
high food and energy prices.
• Even so, international airlines are expected to return to profitability, benefiting from continued pent-
up demand.
• The impact of climate change on the industry will become more apparent, with high temperatures,
water shortages and floods forcing tourism destinations to take action.
Tourism arrivals will rise by 30% globally

Last year, EIU expected global tourism arrivals to recover to near pre-pandemic levels by the end of
2023, as fear of covid-19 recedes and restrictions are lifted. However, Russia’s invasion of Ukraine in
February 2022 and the accompanying political instability, global inflation and economic slowdown—as
well as China’s strict zero-covid strategy—have dampened those expectations. We have now pushed
our forecast for a tourism recovery firmly into 2024, with considerable turbulence likely in the interim.
Even so, the depth of the tourism slump
in 2020-21 means that strong growth is near- Tourism arrivals will fall short of 2019 levels
inevitable in 2023 now that travel restrictions have (International arrivals; m*)
been lifted in most countries. Globally, we expect Asia Middle East & Africa Latin America
pent-up demand for travel to drive growth of 30% 800
in international tourism arrivals, taking them to
700
1.6bn. This follows growth of 60% in 2022, but will
600
still not be enough to take total arrivals to their
500
2019 level of 1.8bn. However, the trajectory will
400
differ by region. Much of the Middle East, buoyed
300
by high oil prices, has already seen a full recovery,
200
while Eastern Europe will have to wait until 2025
because of the impact of the war in Ukraine. Other 100
regions will range in between, with most reaching 0

2019 20 21 22 23
a full recovery in 2024. Sources: World Tourism Organisation; EIU. *2022 and 2023 are forecasts

Chinese travellers will remain largely absent

While the war in Ukraine has delayed the tourism recovery, an even bigger factor has been China’s
zero-covid policy. China accounted for around one-tenth of the world’s tourism departures before
covid, but we now expect its borders to remain largely locked until at least mid-2023. There is even a
risk that the zero-covid policy could be extended if the pandemic continues to be a threat. If all goes
to plan, however, authorities will gradually take a less strict stance towards the virus, easing (but not
lifting) mandatory quarantine measures and inbound travel controls. However, frequent mass testing
of the population in big cities, and occasional lockdowns in smaller cities will continue to keep sporadic
outbreaks from spiralling out of control.
In this scenario, we expect the number of outbound travellers from China to more than double in
2023, to around 59m. Even so, that would be only a little more than a third of the 155m departures in
2019, when China was the world’s biggest source of tourists. This reduced demand will primarily affect
tourist destinations in Asia, including Thailand and Hong Kong, which used to be highly dependent
on Chinese visitors. But the dampening effect will also be felt in Europe, the US and elsewhere. Even
China’s domestic tourism—which also fell in 2020-22—will be affected by the country’s economic
slowdown. We expect GDP growth of “just” 4.7% for China in 2023, which will feel like a recession in a
country used to strong growth.
Labour shortages and high prices will add to woes

Inflation will not only affect travellers in 2023, but also the tourism sector. Hotels, bars and restaurants
are grappling with high food and energy prices, while airlines are contending with high fuel bills. Airlines
also face increasing wage pressures amid a chronic labour shortage. After laying off staff during the
pandemic, many companies have struggled to rehire. This lack of staff has caused airport queues and
caps on passenger numbers, as well as flight cancellations and lost luggage in the summer of 2022. The
chief executive of Heathrow (UK) has warned that problems will last until the end of 2023.
The UK faces particular issues, because Brexit
has stemmed the flow of seasonal workers from Tourism expenditure will rebound faster
the EU. However, there are also labour shortages (Spending by international tourists; US$ bn*)
across Europe and in the US, where employment Asia Middle East & Africa Latin America
in the leisure and entertainment industries is 1,600
still nearly 1m short of 2019 levels. The economic 1,400
slowdown should make recruitment easier if
1,200
job losses mount elsewhere. Several countries,
1,000
including New Zealand and possibly the UK, will
800
also ease visa requirements. Even so, it will take
600
time to replace skills lost during the pandemic.
400
Moreover, this labour-intensive industry is also
200
likely to see more disruptive strikes in 2023 as
workers themselves demand higher wages to cope 0
2019 20 21 22 23
with the higher cost of living. Sources: World Tourism Organisation; EIU. *2022 and 2023 are forecasts

Airlines will edge closer to profit

Major airlines in the US cut costs throughout the pandemic by laying off staff, restructuring fleets and
borrowing heavily. They also received big government bailouts, particularly in Europe, North America
and parts of Asia. Loans, wage subsidies and deferred taxes collectively totalled US$243bn in 2021.
Nevertheless, the International Air Transport Association (IATA) expects airlines to suffer a combined
net loss of US$9.7bn in 2022, after losing around US$180bn in 2020-21.
Despite the difficult economic conditions, the signs for 2023 are brighter, and IATA suggests
that airlines may even head towards profitability if travel rebounds as expected. One big risk will
be fuel costs: although oil prices are now softening, they are priced in US dollars, and the dollar is
strengthening against nearly every currency. As a result, US-based airlines are the most likely to be
profitable in 2023, while airlines in other regions will struggle.
The impact of climate change will increase

Climate change has already started to have an impact on key tourism destinations, with ski resorts
lacking snow and summer resorts affected by droughts and wildfires. In 2023 these impacts will
become clearer if weather-related events continue to get more extreme. Indeed, back in 2009, the
Association of British Travel Agents pinpointed 2023 as the key date for its sustainable tourism drive,
which aimed to protect the environment and develop sustainable transport. However, not enough
progress has been made—tourism now accounts for between 5% and 8% of global greenhouse gas
emissions. Nepal is one country that is setting 2023 as the start of a new sustainable tourism drive.
Travellers’ awareness of the environmental consequences of tourism may also change their travel
plans in 2023. According to the European Investment Bank, 37% of Chinese people, 22% of Europeans
and 22% of Americans say that they will avoid flying because of climate-change concerns. Some of
those who still want to travel will be prepared to pay higher prices for more eco-friendly options, or
carbon-offsetting efforts. Regulators will pile on the pressure too. 2023 will see the conclusion of the
voluntary pilot phase of the Carbon Offsetting and Reduction Scheme for International Aviation to
reduce emissions from international flights. Eight more countries, including Cambodia, Cuba and
Zimbabwe, will join, bringing the total number of participating states to 115.
To watch
Saudi sojourns: The Middle East has seen an extremely strong revival in tourism in 2022. International
arrivals rose by 287% year on year in January to July 2022, taking them close to 2019 levels. Saudi Arabia,
which has seen the resumption of the Hajj pilgrimage, has particularly big plans for its tourism sector
under its Vision 2030 economic development plan. These include the development of the Red Sea
Project, with 50 hotels spread over 22 islands. Although not due for completion until the end of the
decade, the project will take in its first visitors in early 2023.
Venetian fees: Some major tourist attractions are experimenting with tourism fees and taxes to help
reduce crowds or fund infrastructure. From January 16th day-trippers to the ancient Italian city of
Venice and some of its islands will have to make a reservation at a cost of between €3 and €10 (US$3-
US$10), depending on demand. The long-threatened fee will not only cut crowds, it will also cut taxes

for resident Venetians. Overnight tourists will be exempt because they will already be paying for their
stay. Thailand and the Maldives introduced tourism fees in 2022, and London is also considering one.
Good sports: Sporting events will spur travel in 2023. China has pulled out of hosting June’s Asian Cup
football tournament, but it will ease its covid restrictions in order to host the postponed Asian Games
in September. Meanwhile, France will hope to convert the Rugby World Cup into a boost for its tourism
industry.
Gulf Cooperation Council and Saudi Arabian international tourist arrivals
GCC international tourist arrivals Saudi Arabia international tourist arrivals

(m, 2019) (m)
UAE Saudi Arabia Bahrain 2019 2020 2021 2022
Kuwait Oman Qatar 3.0
2.5
4 2
2.0
9
25
1.5
1.0
11
0.5
20 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: EIU.
prompt other countries to reimpose travel bans.

Key risk scenario: A new pandemic or
A widening of the Russia-Ukraine war could
war could upend travel
have an equally devastating effect. The war is
already affecting the tourism industry in several
The travel industry was the sector hardest hit by
ways: the loss of Russian and Ukrainian tourists,
the covid-19 pandemic, with international arrivals
restrictions on airlines and the use of airspace, and
and flights down by over 70% on 2019 levels in both
higher food and fuel costs. However, a wider war
2020 and 2021. A new pandemic, or even a new
would land a big hit to traveller confidence and
deadly variant of covid, would therefore have the
disposable incomes, as well as new limitations on
biggest impact on the sector’s recovery. It would
air routes.
deter China from reopening its borders, and could

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ASPRINET INDO TRAINING
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INTRODUCTION
WHO WE ARE? WHAT WE DO?
STRATEGY
BUSINESS CONCEPT
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& OWNERSHIP
RADEN M
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ONGKYPSUMARNO
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ZOOM Training
Assessment
One of the causes of failure in Human Resource Management (HR) in many organizations is
that management often places people in positions that are not in accordance with their
potential and capacity. This placement error stems from an improper assessment of the
person who will be placed in a certain position.
Because there has been no practical tool nor method for measuring individual potential
and capacity capable of showing representative, and reliable assessment results to be
used as a basis for making the necessary strategic decisions.
Our assessment method is a numerical test model for individual potential and competence.
Combining aspects of psychology and Human Resources, which is more accurate than the
conventional model.
Assessment WHY US?
Develop company Conduct Mapping Assess and

standards for individual individual interpret
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RV ECONOMIST INTELLIGENCE Outlooks 2023

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RV ECONOMIST INTELLIGENCE Outlooks 2023

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Geo-Economic & Industry

March - December 2022

2. Risk Outlook 2023: Ten Risk Scenarios That Could Reshape

3. Africa Outlook 2023: Resilience Amid Disruption

4. Asia Outlook 2023: Mixed Prospects For Regional

5. Europe Outlook 2023: The Threats To Europe’s Industrial

6. Latin America Outlook 2023: Spotlight On New

7. Middle East Outlook 2023: Weathering Political And

8. North America Outlook 2023: Economic Headwinds

9. Horizon For Africa-China Relations: Why Co-Operation

2. Automotive Outlook 2023: Bright Spots Amid Stalling

3. Consumer Goods And Retail Outlook 2023: Retailers

4. Energy Outlook 2023: Surviving The Energy Crisis

5. Finance Outlook 2023: A New Test For Financial Stability

6. Healthcare Outlook 2023: The Aftermath Of The Pandemic

7. Technology And Telecoms Outlook 2023: The Battle

8. Tourism Outlook 2023: Turbulence In The Travel Industry

Actionable insight to win in the world’s markets

Economist Intelligence Economist Intelligence Economist Intelligence

Economist Intelligence Economist Intelligence

How soaring inflation has affected prices globally

1 © The Economist Intelligence Unit Limited 2022

Top ten positions

2 © The Economist Intelligence Unit Limited 2022

Biggest movers up the rankings in the past 12 months

Bottom ten positions

3 © The Economist Intelligence Unit Limited 2022

Biggest movers down the rankings in the past 12 months

Inflation is widely spread but variable

4 © The Economist Intelligence Unit Limited 2022

Price increases are set to ease in 2023

5 © The Economist Intelligence Unit Limited 2022

utility bills, private schools, domestic help and

6 © The Economist Intelligence Unit Limited 2022

You can purchase this year’s report at the EIU Store.

• Comparative cost of living indices between a base and host city.

7 © The Economist Intelligence Unit Limited 2022

© 2022 The Economist Intelligence Unit Limited. All

While every effort has been taken to verify the

Actionable insight to win in the world’s markets

Economist Intelligence Economist Intelligence Economist Intelligence

Economist Intelligence Economist Intelligence

Risk Outlook 2023

Global risk scenarios

Deteriorating ties Cold winter worsens War in Ukraine turns

China's zero-covid policy

High inflation fuels Extreme weather and war

Scenario one: cold winter exacerbates Europe’s energy crisis

1 © The Economist Intelligence Unit Limited 2022

Scenario four: high global inflation fuels social unrest

Scenario five: new variant of coronavirus, or another infectious disease, sends

Scenario six: inter-state cyberwar cripples state infrastructure in major

By global GDP (%) By global population (%)

Scenario seven: further deterioration in West-China ties forces full decoupling

4 © The Economist Intelligence Unit Limited 2022

Scenario eight: aggressive monetary tightening leads to global recession

Major central banks are rapidly raising interest rates

Scenario nine: China’s zero-covid policy leads to severe recession

5 © The Economist Intelligence Unit Limited 2022

Scenario ten: Russia-Ukraine conflict turns into global war

6 © The Economist Intelligence Unit Limited 2022

Operational Risk enables you to:

• Download data to analyse in your risk-rating models.