How to plan for the future when the only certainty is uncertainty

While inflation appears to have peaked, the global economy still faces a variety of challenges in 2023. As recently discussed by the International Monetary Fund’s World Economic Outlook (April 2023), the forecast is once again uncertain, owing to financial-sector turbulence, soaring inflation and the consequences of Russia’s invasion of Ukraine and three years of Covid, says economic expert Dr Alessia Paccagnini.

“According to IMF, global headline inflation is expected to reduce from 8.7 per cent in 2022 to 7 per cent in 2023 as commodity prices fall, but underlying (core) inflation is expected to fall more slowly,” says Paccagnini, academic director of the master in quantitative finance programme at UCD Michael Smurfit Graduate Business School. “In most circumstances, the restoration of inflation to target is unlikely until 2025.”

Paccagnini says growth is expected to dip from 3.4 per cent in 2022 to 2.8 per cent in 2023 before stabilising at 3.0 per cent in 2024.

“Growth in advanced economies is predicted to fall sharply, from 2.7 per cent in 2022 to 1.3 per cent in 2023,” she says. “In a probable alternative scenario, with additional financial sector stress, global growth falls to around 2.5 per cent in 2023, with advanced economies growing at or around 1 per cent.”

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Planning for an uncertain future

Looking at these predictions, businesses can plan prudently plan for the future, knowing the only certainty is uncertainty. Businesses must be proactive in analysing their abilities to stress test the impact of the present turmoil on their business models as uncertainty rises and financial impacts become more obvious.

Some businesses will have a growth outlook focused on transformation and will seize opportunities to gain a smart competitive advantage – and with invention come improved methods of dealing with uncertainty.

Firms might use hedging strategies when they perceive uncertainty about economic conditions. The portfolio of activities will be rebalanced toward those that can survive the turmoil, whether they are productive activities or cross-functional areas of a multinational corporation, such as human resources or internal control. The company can cut the cost of such functions while accepting a loss in sales.

In response to Brexit, Sony, for example, decided to keep a major presence in the UK while relocating its EU headquarters to the adjacent Netherlands. The cost of such a shift is modest and can be reversed, while vital activities are relocated to a safer place.