The global economy is transfixed in the cross-currents of slowing growth and high inflation, and an uneasy calm prevails in the global financial markets as they await clearer signals from policy authorities on banking regulation and supervision, and contours of deposit insurance. In April and the first half of May 2023, domestic economic conditions have sustained the quickening of momentum seen in the last quarter of 2022-23. Headline inflation eased below 5 per cent in April 2023, for the first time since November 2021. Corporate earnings are beating consensus expectations, with banking and financial sectors posting strong revenue performance, aided by robust credit growth. In the first quarter of 2023-24, growth is expected to be driven by private consumption, supported by reviving rural demand, and renewed buoyancy in manufacturing on easing of input cost pressures.

Introduction

With inflation dipping and stalling globally after its prolonged upward surge, central banks have either moderated or paused their rate actions. Along with forceful resolution of financially distressed banks, this has brought an uneasy calm to global financial markets as they await clearer signals from policy authorities regarding the future course of bank regulation and supervision, and the contours of deposit insurance. The window of relief has, however, allowed markets to regain verve. Equities and bonds have clawed back lost ground although bank shares underperformed the broader equity indices. Once risk-on sentiment returned, corporate bond spreads narrowed. Currencies have traded in a narrow range with the US dollar having retreated from its monotonic rise through most of the year gone by. Portfolio flows are returning to emerging markets, and this has supported their currencies.

The global economy is transfixed in the cross hairs of these complex pulls. At the start of the second quarter of 2023, i.e., in April, global growth was resilient going by high frequency indicators, sustaining the momentum it had gained in the first quarter of the year. On a month-on-month (m-o-m) basis, retail sales growth has picked up in March. Purchasing managers’ indices (PMIs) pointed to strong output growth in April – at its highest since mid-2022. This resilience has been driven mainly by services, including tourism and financial services, while manufacturing continued to struggle, and new export orders remained muted. Goods producing firms are mainly filling order backlogs while unwinding safety stocks of inputs. Stocks of finished goods have begun to rise, and capacity continues to be strained. Services will, hence, be the immediate growth driver and this presages the sustained strength of employment.

The constellation of risks raises policy challenges amidst a renewed disconnect between markets and central bank communication. Broader issues have opened up around the scope for fiscal consolidation in 2023 if growth slows, and the risk this may pose to the disinflationary stance of monetary policy. High debt levels sit on the cross-currents of these tensions as borrowing costs become sensitive to the tightening of financial conditions.

Another challenge is the interaction between financial stability and macroeconomic stability: should monetary policy makers consider financial stability risks in their decision making? Or is monetary policy too blunt an instrument and, therefore, should be resolutely committed to macroeconomic stabilisation, while central banks employ other tools such as liquidity management and prudential policies to fulfil their responsibility for financial stability? For now, central banks have chosen the second path, but if financial stress intensifies again and broadens this time – analysts believe that commercial real estate is the ‘next shoe to drop’¹ – it could impose a binding constraint on the conduct of monetary policy. Normalising central banks’ pandemic-bloated balance sheets is intertwined into this dilemma.

The World Economic Forum’s fourth edition of the Future of Jobs Survey released on April 30, 2023 brings together perspectives across the 2023-27 timeframe of 803 companies collectively employing more than 11.3 million workers across 27 industry clusters and 45 economies from all world regions. Over 85 per cent of these organisations identify adoption of new and frontier technologies, broadening digital access and environmental, social and governance (ESG) standards as most likely to drive transformation. More than 75 per cent of companies are looking to adopt big data, cloud computing and artificial intelligence (AI), while 86 per cent expect to incorporate digital platforms and apps into their operations in the next five years. E-commerce and digital trade are expected to be adopted by 75 per cent of businesses. The second-ranked technology encompasses education and workforce technologies, with 81 per cent of companies looking to adopt these technologies by 2027.

Big data analytics, climate change and environmental management technologies, and encryption and cybersecurity are expected to be the biggest drivers of job growth. Agriculture technologies, digital platforms and apps, e-commerce and digital trade, and AI are all expected to result in significant labour-market disruption. Employers anticipate a structural labour market churn of 23 per cent of jobs in the next five years - emerging jobs added and declining jobs eliminated. A higher-than-average churn is expected in supply chains, transportation, media, entertainment and sports industries, and lower-than-average churn in manufacturing, retail and wholesale trade. Respondents expect structural job growth of 69 million jobs and a decline of 83 million jobs. This corresponds to a net decrease of 14 million jobs, or 2 per cent of current employment. Organisations estimate that 34 per cent of all business-related tasks are currently performed by machines, representing a negligible 1 per cent increase in the level of automation since 2020. Respondents predict that 42 per cent of business tasks will be automated by 2027. Six in 10 workers will require training before 2027, but only half of workers are seen to have access to adequate training opportunities today.

Overall, new insights emerge on how labour markets are expected to evolve over the next five years as they get continually shaped by powerful forces. Workplaces are changing rapidly and so are skill requirements. Significant disruption is expected to be experienced from macroeconomic trends and technological progress in the next five years. It is said that technology will limit the jobs of the future to jobs related to technology. Job creation will likely be driven by green transition and localisation of supply chains. Healthcare may turn out to be resilient to the imminent churn as populations age. Clerical and secretarial skills are expected to decline the fastest. Learning and training on the job, and accelerating automation of work processes are likely to be the main drivers of workforce strategies. Employers are looking for people who possess behavioural skills suitable for 2023-27. People with these skills will be better prepared to meet the challenges and opportunities of the next five years.