The US economy remains in significant momentum and is not currently on the brink of recession. However, economists have never been so pessimistic and there are very valid reasons for concern. Over the past half-century, inflation above 5% has never been tamed without a recession. That suggests a painful but necessary chain of events will unfold in 2023, according to a comprehensive outlook for the year from CoBank’s Knowledge Exchange.
The CoBank 2023 Outlook report examines several key factors that will shape the agriculture and market sectors that serve rural communities in the United States
World economy: No escape from this slowdown
After two years of strong economic recovery from the pandemic, the global economy is set to falter in 2023. An ongoing energy crisis in Europe, China’s chaotic exit from the zero-COVID phase-out, and higher interest rates worldwide will slow global economic growth to a crawl. Europe, probably already in recession, will get through the winter with enough energy supplies. China, much less affected by Russia’s invasion of Ukraine, will continue to struggle with the impact of COVID. Greater Asia is being negatively impacted by falling global demand for goods. Emerging markets will continue to fuel the global economy in 2023 as advanced economies as a whole could stagnate and even shrink.
US economy: Some pain is needed
The labor market remains very tight, consumers continue to spend aggressively and corporate profit margins have reached record highs despite high inflation. If a recession looms, it will take several months for these factors to reverse, delaying a possible recession until at least the second quarter of 2023. Even then, it’s unclear how willing companies would be to lay off employees after facing such extreme staffing challenges in the past 2 years. The structural loss of more than 2 million workers since 2020 is contributing to higher inflation in both goods and services. However, the void left by her exit could also cushion the economy ahead of the worst downturn in 2023.
US agribusiness: Farm margins will tighten
Despite the global pandemic and a steady barrage of disruptive challenges, the US agribusiness has performed reasonably well over the past three years. However, in 2023 manufacturers and related industries will start to show financial strains. An unrelenting series of adversities, including skyrocketing production costs, soaring interest rates and weakening demand, will put increasing pressure on farm incomes and margins. The ongoing drought and rising political tensions with China — the US’s largest agricultural export market — pose additional downside risk must” attitude.
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Specialty Crops: Drought, labor shortages, strong US dollar under headwinds
Specialty crop growers and processors face a variety of headwinds in 2023. The cost of water, labor, fertilizer and other inputs is rising while a strong US dollar and a sluggish global economy are affecting the US’ ability to sell products abroad. California, in particular, is facing deteriorating conditions, with the highest diesel prices and farm wages in the US amid a worsening drought. The drought has pushed water prices to record highs as La Niña conditions persist for the third straight year. Shortage labor availability will require growers to rely more heavily on H-2A workers or to introduce more automation in the field. Despite the headwinds, growers and processors will benefit from falling shipping container costs and fewer delays at seaports.
To read the full report, visit CoBank.com.
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