Tough economy ahead 2023-2028

 

How bad are the forthcoming recession, possible stagflation, and subsequent low-growth economy for your Small Business and your trusting Stakeholders?

 

Tough economy ahead 2023-2028 

 

Recession – 2023-2024 

Stagflation 2024- 2026 

Low Growth Economy 2027- 2028

 

Are you ready?

From 2023 onwards, there will be a recession, possible stagflation, and a subsequent low-growth economy.

 

 IMF– The global Economy faces its biggest test since the Second World War.

 We face a ‘confluence of calamities.‘

– The International Monetary Fund (IMF) – May 2022

 

JPMorgan Chase- Economic Hurricane Warning

-Jamie Dimon, the CEO of JPMorgan Chase, “prepare for an upcoming economic hurricane. That hurricane is right out there down the road coming our way.”

– June 2022

 

University of Michigan- U.S. consumer sentiment is now at the lowest level in 70 years

By mid-2023, consumer sentiment sees a further drop of 24% in business conditions and a 20% further decline in the consumers’ assessments of their personal finances

– June 2022. 

 

World Bank- Hammering growth and the risk of stagflation

-David Malpass, The World Bank President – “The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid,” – June 2022

 

U.S. Treasury Secretary- A possible occurrence of ‘stagflation.’

-Janet Yellen, US Treasury Secretary – May 2022  

 

Former Federal Reserve Chairman– Stagflation in the next year or two.

– Ben Bernanke-Former Federal Reserve Chair, Ben Bernanke – May 2022

 

Unstoppable rising inflation and much higher interest rates

Stagflation is bad news. Stagflation means a high inflation rate, high unemployment and stagnant economic demand. 

The last period of stagflation was 49 years ago, due to the “Oil Crises” in late 1973. U.S. stagflation lasted for the remainder of the 1970s. High inflation was only broken by instituting 20% p.a. interest rates in 1980. A subsequent 2-year recession in 1981 and 1982 followed.

As of June 2022, many of the world’s largest economies already have inflation rates nudging towards 10% p.a. Eighteen months ago; inflation was well contained at around 1-2.5%p.a.

For example, Europe’s largest economy, Germany, had an inflation rate in January 2021 of 1% p.a. In June 2022, it reached 7.9% p.a. 

The U.K.’s inflation rate was 9.1% p.a. in May 2022, the highest since 1982. 

Russia’s cutting off of oil and gas exports to certain major European countries and the decision by these European countries to reduce their oil and gas imports from Russia to 10% of their usual imports will see a major jump in these European countries’ inflation rates. Winter 2022 in Europe will see a sizeable jump in oil and food prices. Their inflation rates are likely to exceed 10% p.a. for 2022.

At 8.6% p.a. for May 2022, the USA inflation rate is near a 40-year high last seen in December 1981. 

Russia’s inflation rate was 17.2% p.a. in April 2022.

Economists in the USA are optimistic that inflation will recede soon, but no one has an accurate economic model for the “confluence of calamities”, as stated by the IMF. This is unchartered waters, and “old maps” may have to be thrown away.

In my humble opinion, unless global supply chains can be unblocked, global food, oil and gas prices are significantly reduced, Russia’s war in Ukraine be stopped, China’s Zero COVID policy is substantially reduced, and even higher global inflation is inevitable.

 

U.S. Federal Reserve benchmark interest rate has risen from near zero per cent to 1.75% during the first six months of 2022. In mid- June 2022, the U.S. Federal Reserve raised its benchmark interest rates by 0.75%p.a., the most aggressive hike since 1994. Economists expect a further 2.65% p.a. increase and a 3.4% p.a rate by the end of 2022.

In my humble opinion, with a lot more juice in the inflation rate, looming global geopolitical confrontation, continuing supply constraints, and falling consumer and investment demands, the U.S. economy, as the world’s leading economy, has some shocks in store for it. 

The flight of money-seeking security in the U.S. dollar inflates the dollar’s value beyond its present and future economic performance. This may prove to ‘bite it in the behind’ in the future.

I believe U.S. interest rates will rise higher than 3.4% p.a by December 2022.

 

Credit bubble to burst due to surging interest rates soon to negatively affect economic growth in the world’s largest economy with a knock-on effect globally

 

The effect of easy credit give-aways by the U.S. Federal Reserve of an additional $8.2 trillion from late 2008 to mid-2022 will see those chickens coming home to roost.

The reflation of the post-Covid economy with trillions of dollars “given away” to improve the expected drop in consumer and investment spending has jet-propelled inflation as near zero per cent interest rates caused rapidly rising unsubstantiated asset appreciation and fuelled consumer demand.

For example, the U.S. housing market’s average home price shot up 37% from Q1 2020- Q1 2022. Rentals followed, and housing costs were responsible for 40% of the increase in the CPI for May 2022. Mortgage rates have nearly doubled during the first half of 2022, with more increases to come, as predicted in this assessment report. Predicting house price movements in the USA is precarious due to a backlog of some 5 million homes required and the fact that the average homeowner has a 33% net equity in their home. In 2007, mortgage loan values were near 100% of the average home’s value. However, if home prices don’t drop meaningfully and tenants are called upon to stump up on high rentals, the CPI will remain stubbornly high. 

The S&P 500 Index is 20% lower for the first half of 2022 and the Nasdaq 30% down. 

Asset depreciation, which has already begun, may cause bubbles to burst to wreak economic damage to households, businesses and government finances.

 

USA credit availability to the U.S. Financial System by the Federal Reserve has risen from 6.1% of GDP in September 2008 to 40% of GDP in mid-2022.

To put that into perspective, in September 2008, the U.S. Federal Reserve(Fed) had $ 900 billion on its balance sheet owed to it by the Financial System. The Fed controls the issuing of notes and credit in the U.S. economy. They control the dollar’s printing press.  

After the bubble burst, which caused the Great Recession of 2008, in October and November 2008, the Fed created an additional $1.3 trillion of credit fed into the U.S. Economy with the intent of reflating the economy and providing credit facilities for those responsible for causing the burst bubble in the first place. The banks were considered to be” too big to fail.” This was money owed to the Fed by the Financial System.

Over the next six years, additional credit of $2.7 trillion from the Fed was fed into the Financial System. The balance then stood at $4.4 trillion.

As a reaction to the potential dangers of economic contraction caused by COVID in March-May 2020, the Fed created further credit to the Financial System of $2.9 trillion. The balance then stood at $7.1 trillion owed to the Fed by the Financial System.

This financial accommodation to the Financial System increased by a further $2 trillion during the balance of 2020, 2021 and into early 2022.

The amount the Financial System owes to the Fed, through its credit printing press, stands at $9.1 trillion in mid-2022. This is the equivalent of 40% of the current GDP of the USA. In September 2008, the Fed’s credit owed by the Financial System stood at 6.1% of 2008’s GDP! If this doesn’t cause alarm bells to ring, then what will? Printing more money via credit extensions is inflationary and cannot be wished away.

In March 2022, the U.S. Government debt to GDP was 128.9%. According to fiscal.treasury.gov in March 2022, “The continuous rise in the debt-to-GDP ratio indicates that current fiscal policy is unsustainable.” 

Historically, sharply rising interest rates are Central Banks’ weapon to reduce demand for goods and services. A major global recession, and possible stagflation, with a subsequent low-growth economy for years, will result.

 

Dropping consumer and investment spending ahead

 

According to Michigan University’s monthly Consumer Sentiments Survey, consumer confidence in June 2022 has dropped to its lowest level since 1952.

With rapidly increasing interest rates, consumer and investment spending will drop substantially as consumers’ pockets empty, and investors run for the hills. Only purchases of essential goods and services may be relatively immune.

 

Your small business and various trusting stakeholders will possibly face the biggest survival test in 65 years since WW2. –  derived from International  Monetary Fund (IMF)

According to the U.S. Bureau of Labor Statistics (BLS), 20% of businesses fail during the first two years, 45% during the first five years, and 65% during their first ten years.

With 23 million small businesses in the U.S. and an average failure rate of 9% p.a. during a five-year period, 2.1 million small businesses fail each year, or 8500 small businesses fail each day.

On a global basis, with 213 million small businesses, according to Statista, the failure rate is 19.2 million small businesses a year, or 780 000 small businesses fail every working day.

These U.S. statistics occurred pre-Covid, which started in early 2020. According to U.S. government research, during the first three months of the Covid Economy, February- April 2020, 22% of all active U.S. small businesses closed their doors. One in five small businesses closed – the highest on record.

According to various economic experts quoted in this assessment report, the forthcoming global recession may be severe; stagflation may rear its ugly head, followed by a low-growth economy for years.

If so, a global tsunami of economic contraction will force many unprepared small businesses into bankruptcy or voluntary closure. The aftermath for their trusting Stakeholders will be severe.

 

My forecast of the dangerous times ahead for small business owners and their stakeholders 

 

My forecast is based on input from the IMF, U.S. Treasury Secretary, a Former Federal Reserve Chair, a former Central Banker at WEF’s Davos conference in May 2022, and Jamie Dimon, CEO of JPMorgan Chase

 

I had come out of retirement to ensure that a few selected small business owners and stakeholders supporting small businesses will not only survive but also prosper in what I see as potentially the toughest economic period we are about to face since 1945 or since 1980 when the U.S. interest rates went to 20% p.a. to stop high inflation. 

By May 2022, inflation is already nudging towards 10% p.a. in most developed economies. In early 2021, inflation was 1-3% p.a. The further forthcoming impact of the main inflationary drivers worldwide will be much more severe than most economists predict. 

As mentioned above, the IMF stated in May 2022,

 The global economy faces its biggest test since the Second World War.

 We face a ‘confluence of calamities.’

 

Quite frankly, traditional economic models are outdated and cannot anticipate the future damage caused by even higher inflation and much higher interest rates attempting to slow down inflation. 

All these respected economists missed predicting the highest surge in inflation in seventy years! 

 The recession, possible stagflation, and a subsequent low-growth economy for years to come may not be fully factored into their economic forecasting models. 

Many economists under 40 years old have no experiential economic memory bank before 2000. Mine goes back to the “oil crisis” of 1973 when we faced stagflation in the eye for most of that economically disastrous decade.

A report from WEF’s Davos conference in May 2022 stated, “as one former Central Banker told me, no one, including Central Banks, believes their models”– Huv van Steenis, co-Chair WEF Global Future Council on Responsive Financial Systems. 

I foresee that the damage of much higher interest rates will cause many business failures and voluntary closures, especially for small businesses worldwide. 

For economic stimulatory purposes, Central Banks artificially created near-zero interest rates from 2020 to early 2022. As borrowers climbed the “free” money bandwagon, asset prices shot up.

As the average borrowers’ interest rates potentially move between 5-9% p.a. in developed economies, most asset prices will significantly drop as higher interest rates bite and investor confidence diminishes. Lenders will suffer major bad debt write-offs and have weaker balance sheets due to the depreciation of the value of their asset security for granted loans. This will impact their lending abilities in the tough economic times ahead.

Lenders will lose their appetite for new loans. Investors will become skittish as they stare into the abyss of future uncertainty. Lack of confidence in the future portends investor and funder’s resistance to increasing risks.

In the late 1980s, when Japan faced similar but more extreme economic and lending financial systems circumstances, it faced a very long period of stagflation that started in 1990. A very low-growth economy persisted for three decades.

While I don’t see the Japan bleak scenario re-occurring soon in the world’s developed economies, forewarned is forearmed. 

 

A possible occurrence of ‘stagflation.’

-Janet Yellen, US Treasury Secretary – May 2022 

 

Stagflation in a year or two

Ben Bernanke, Former Federal Reserve Chairman- May 2022

 

Welcome to my tough times “sandbox.”

I have been a successful small business entrepreneur and proactive Strategic Business Advisor for 45 years. 

I know all about walking a tightrope daily and sleeping fitfully at night. I also know that ‘happiness is a positive cash flow!’

As an entrepreneur, I have been involved in numerous local and global industries. I have been a Researcher, Forecaster, Global Real Estate Economist, Institutional Strategic Investment Advisor locally and globally, Negotiator, Strategic Business Advisor, Investor, Real Estate Developer, Internet Business Develop, Media Commentator and Conference Speaker. Additionally, I have authored over 100 investment journals for my client base and over 50 quarterly publications on the prospects for the economy and 23 manufacturing industries, 

Before retiring from the global stage, Neville Berkowitz Global Associates operated in seventeen countries on five continents as advisors to Institutional Investors seeking to develop their global investment portfolios. 

Through proper research and forecasting, I have also been an Opportunistic Investor.

As an Advisor, my clients have included Government, Institutions, Investors, Developers, Associations, Corporates, Small Business Owners, and High Net Worth Individuals locally and globally. 

 

I have been successful in a persistent low growth, recessionary economic environment and through periods of stagflation

I have fulfilled certain of the above functions globally and all these functions locally. 

I have been both an entrepreneur and proactive Strategic Business Advisor for over four and a half decades in a local economy with: 

• a persistently high inflation rate averaging 15% p.a., 
• high interest rates averaging 10.4% p.a., 
• a current unemployment rate of 46%,
• a low economic growth rate averaging 0.7% p.a. 

Overall, these four conditions are the classic definition of stagflation in the local economy, where I have survived and prospered for 45 years.

The forthcoming global recession will have low economic growth, high inflation, high-interest rates, and increasing unemployment.  

Welcome to my “sandbox.”

 

Is the dreaded stagflation a possibility?

The U.S. suffered stagflation through most of the 1970s and was stopped in 1980 by raising interest rates to 20% p.a. A two-year recession followed.

In May 2020, Janet Yellen, US Treasury Secretary, said, “The economic outlook globally is challenging and uncertain, and higher food prices and energy prices are having a stagflationary effect, namely depressing output, and spending and raising inflation all around the world.” 

Also, in May 2022, Former U.S. Federal Chair Ben Bernanke said, “inflation is still too high but coming down. So, there should be a period in the next year or two where growth is low, unemployment is at least up a little bit, and inflation is still high. You could call that stagflation.”

 

Stagflation, a stagnant economy, is on the cards. In the 1970s, stagflation lasted seven years. As mentioned above, high inflation in the USA was only brought under control by increasing interest rates to 20% p.a. in 1980. A recession followed in 1981 and 1982.

 

Economic Hurricane Warning

-Jamie Dimon, the CEO of JPMorgan Chase, “prepare for an upcoming economic hurricane. That hurricane is right out there down the road coming our way.”

He said that JP Morgan Chase prepares for a “non-benign environment” and “bad outcomes.”

That’s Top Bankers’ speak’ for a “S#%& Storm is coming!

 

Consumer sentiment is at its lowest in 70 years

The University of Michigan’s Consumer Sentiment Index, which began in the 1940s, shows that consumer sentiment is at its lowest in seventy years. The consumers’ predictions for both businesses’ performance and consumer spending are down by over 20% for 2023.

 

Crises present opportunities for well-prepared small businesses

Every crisis provides certain prosperous opportunities, and over 45 years, I learned how to future-proof my business and clients.

I can help you too.

It is well known that those who fail to prepare, prepare to fail.

Please visit the Investment section to see how I can help you survive and prosper in the extremely difficult times ahead.  

 

What will you do about these predictions, which will soon affect your small business?

I decided to come out of retirement to guide and advise a few small business owners at any given time. I also want to help the stakeholders who trusted small business owners and potential buyers/investors of a small business. I want to ensure that they all survive and prosper in the extremely difficult economy I depicted and forecasted above.

In making this decision, I decided it’s better to light one candle than curse the darkness.

As St. Francis of Assisi said, “All the darkness in the world cannot extinguish the light of a single candle.”

 

My “sandbox” is the forthcoming recession, possible stagflation, and subsequent low-growth economy.

I can guide you to survive and prosper in the extremely difficult times ahead.

 

Please visit the Future-Proof Section to learn more about me and my “sandbox” and how I can help future-proof your small business ensuring its prosperity for you and the Stakeholders who have trusted you.

 

The Your Investment section provides you with information about the Initial Assessment Future Proofing Report ($490) and, if required after that, the Proactive Business Strategy Report and Strategic Advisory Service ($2600) created from the comprehensive interrogative and interactive Q&A on 20 major topics, and numerous steps within each topic. This is the research and forecasting process I use as a basis to enable you to survive and prosper in the tough economic times ahead. 

This Profitable Solutions section identifies my “out-of-the-box” thinking and solutions for your business to survive and thrive in what the IMF calls potentially the toughest economic times since World War 2.

The Stakeholders section provides an unbiased and independent 360-degree Due Diligence Strategic Business Report and Strategic Advisory Service of a small business and whether it can be future-proofed for its survival and prosperity. 

This unbiased and independent Due Diligence service can be commissioned by a Small Business Owner, one or more of its stakeholders, or a prospective Buyer/Investor in a small business. 

These Stakeholders include current and potential Investors, Funders, Asset Financiers, Bankers, Creditors, Goods and Service Providers, Landlords, and current and potential Staff.

 

The Case Studies section provides three examples of my strategic and advisory work.