At the close of 2022, Gulnara and I thought it would be fun to pop up some forecasts for 2023. So what were they and how did we do?
It appears we made four forecasts:
- That the “rebalancing towards consumption” in China would dominate the discussion post-COVID economic adjustment – making it harder to bring inflation down in a low cost manner and keeping tradable inflation high.
- Automation would be a major theme – with a clear visual number of worker tasks across a number of jobs now being clearly automated.
- Industry policy would be the go to policy lever pointed at given the two above economic themes.
- However, there would also be increasing discussion of unemployment benefits – and the importance of the safety net for supporting these transitions.
Right, nice consistent story – two changes in the underlying economy, two policy responses.
How did we do? I’m going to self-evaluate – but super keen for everyone elses thoughts in the comments!
The importance of rebalancing
The only reason this gets close to a passing grade is because China and the IMF have been talking about rebalancing a lot and terming 2023 the year of rebalancing.
However, here are the ways this has failed as a forecast:
- Consumption shares had been falling in the lead up to 2023, and it isn’t clear they’ve risen.
- Instead of rebalancing – growth and inflation in China have slumped.
- Exports have held up – even if growth has been weak.
- The Chinese housing market is imploding.
And then it appears the Federal Reserve has enginnered a soft landing – with inflation coming down and unemployment staying low – without any interference from Chinese rebalancing.
Maybe 4 was too generous – but I am willing to take that it is clumsy internal rebalancing that is creating woes for the Chinese economy, as discussed in our podcast. If you want to be harsher feel free to be in comments 😉
Automation as a key theme
The first signs of ChatGPT being effective for mass consumer use came in late November last year.
Since then it has improved in power massively, can generate images, can read PDFs, and is actually able to make readable latex tables!
However, this is not just a story of ChatGPT. On Twitch automated streamers are producing content. In the local retail stores autonomous lawnmowers are taking over more household tasks. And I’ve heard that GitHub copilot is a game changer for coding – something I should really look into given how much of my work is coding nowadays!
The influence of automation on service work has become increasingly clear – and 2023 was a watershed year for this.
The terrible decision to pay movie and game producers have continued, and industry policy has remain an important topic among the chattering class.
But with supply chain disruption easing, any talk of industrial policy went with it. Instead – at least in the Australian context – there has been a lot more chat about mobility and job opportunities, rather than a determination for government to determine what those jobs should be.
I had anticipated a lot more friction here.
In the first half of the year this looked like a steller forecast – over here in Australia there were significant changes in the Federal Budget, an Employment White Paper that talked strongly about benefits, and wide discussions about how the safety net could support transitions.
Our own work on the income support system, age-based targeting of payments, and employmemt responses to the financial incentives from benefits led to a lot of interesting and important discussion about these systems.
However, a hot labour market does start to push the unemployment benefit system into the background of peoples thoughts. And in the last quarter of 2023 it has become clear that people aren’t really thinking about these systems now.
Once a recession happens, or once we see a sharper increase in unemployment, then the discussion will reopen – but the view that we need to think about whether the unemployment benefit system is fit for purpose for looking at labour market transitions is quite “there” yet as a public discussion item.
However, the significant increase in discussion about how the welfare system influences work choice and the return of chats about EMTRs (effective marginal tax rates) definitely made this an ok forecast 😉
So what are the themes for 2024
We’ve talked about some of them. But still have to finish our projections off – let me have a think and I’ll be back to you in early January 😉 . Happy New Year!!!