2023 CAPITAL MARKETS FORECAST
The gravitational pull of
labor, China, and energy
Wilmington Trust proudly presents our 2023 Capital Markets Forecast
The inflationary vortex has been the result of several forces—some unforeseen or unforeseeable—spiraling upward. In this year’s forecast, we focus on three catalysts that we expect to impact tomorrow’s inflation outlook: the U.S. labor market, China’s economic and demographic evolution, and the role of green energy. We conclude with the important linkages between these themes and positioning of client portfolios.
Among the factors responsible for today's inflation, the tight labor market and the upward pressure on wages are the ones that are most likely to continue.
THE TOTAL U.S. LABOR FORCE IS APPROXIMATELY 3 MILLION WORKERS BELOW THE PREPANDEMIC TREND1
OF WORKERS HAVE STOPPED GOING ABOVE AND BEYOND FOR THEIR EMPLOYERS2
Prevailing price pressures
Inflation is likely to continue due to three distinct sources of labor market tightness:
Reduced labor participation due to pandemic-related behaviors, especially early retirement
Lower productivity attributable to lack of motivation and a reluctance to work more hours than required
Low population growth, particularly from immigration, that traces to both the pandemic and domestic political forces
Data as of October 31, 2022. Wilmington Trust Investment Advisors, Inc. (WTIA), Federal Reserve Bank of Atlanta, Bureau of Labor Statistics, Congressional Budget Office.
The Harris Poll COVID-19 Tracker, Wave 135, September 28, 2022.
TALK TO AN EXPERIENCED INVESTMENT ADVISOR IF YOU'RE CONCERNED ABOUT HOW THESE INFLUENCES MAY IMPACT YOUR PORTFOLIO.
Over the last 20 years, China’s economy grew 13-fold.3 Today, China is the nerve center for the global supply chain and an omnipresent force as the world’s second-largest economy.
OF THE WORKING-AGE POPULATION EXPECTED TO SHRINK BY 2050, WHILE THE 65+ GROUP WILL ROUGHLY DOUBLE4
PEOPLE IN CHINA WERE STILL IN COVID LOCKDOWN, AS OF SEPT 20225
Its policies and grave demographic challenges may elevate structural inflation globally.
China’s commitment to a “zero-COVID” policy continues to strain the global supply chain
A heightened focus on domestic consumption and elevated living standards will result in higher inflationary pressure
China’s demographics may be the biggest structural driver of inflation as its population ages at the fastest rate of any major country6
Bloomberg, The World Bank.
The Population Division of the Department of Economic and Social Affairs at the United Nations.
Observatory Group research note dated September 21, 2022.
C. Textor, “Labor force in China from 2000 to 2020,” Statista, November 24, 2021.
CONTACT AN ADVISOR TO DISCUSS HOW THESE UNFOLDING TRENDS MAY IMPACT YOUR INVESTMENT PLANNING.
As global governments transition from hydrocarbon-based energy to renewable sources, we expect this shift to promote inflationary pressures.
IS THE ESTIMATED COST OF INTEGRATING GREEN TECHNOLOGIES INTO THE U.S. GRID OVER THE NEXT DECADE7
DECLINE IN CAPEX BY MAJOR OIL COMPANIES SINCE 20138
Fueling an inflationary spiral
At least three drivers could increase inflation risk as the global energy network moves to limit the use of fossil fuels:
A reduction in capital expenditures (capex) and output by the petroleum industry
A surge in demand for vital, non-hydrocarbon commodities
Public policy aimed at accelerating the energy transition
Dan Shreve and Wade Schauer, “Deep decarbonisation requires deep pockets,” Wood Mackenzie, June 2019.
Kathy Hipple, et al., “Oil Majors' Shrinking Capex Signals Industry in Decline,” Institute for Energy Economics and Financial Analysis, February 2020.
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