Viewpoint

Some predictions for 2023

As I write this, it is December 2nd, 2022. I am looking out of my window at the New York skyline and pondering the future. What does 2023 hold for us? Here are my predictions. They are based on my reading (sources include the Wall Street Journal, Bloomberg, Washington Post, New York Times, Axios, gCaptain, Chain Store Age, Forbes and more) and my interviews with toy industry leaders.

If I am right, don't forget to praise me. If I am wrong, this never happened.

Inflation

Inflation is slowing down, or it isn't, depending on where you get your information. I predict that inflation will decelerate in the latter part of 2023. I say this based on two factors:

• Walmart and other major retailers have told vendors they will not accept new price increases. This changed from last year when they negotiated but accepted price increases.

• The Federal Reserve and other Central Banks plan to continue increasing lending rates but in smaller increments. Fed Reserve chairman, Jerome Powell told the Brookings Institution: "Despite some promising developments, we have a long way to go in restoring price stability."

Jerome Powell sees the light at the end of the tunnel, but he is not ready to blow out his candle.

Recession

It's a lose-lose proposition for the Central banks, but they are more afraid of inflation than of recession. Will there be a recession next year? As long as the Central banks, like the Federal Reserve in the US, keep raising interest rates, there is a high probability of a recession. It should be mild. How mild will it be? A lot depends upon China.

China

China has used quarantines to fight Covid and has rejected western vaccines. As a result, it has a population (of almost 1.5b) that has not built up herd immunity. If it loosens quarantine protocols, it could face a health crisis.

So, China also faces a lose-lose proposition. If it ends quarantines, it faces an explosion in Covid cases. If it continues with quarantines, it faces social unrest. All of this concerns those who manufacture in China because it has the world's second-largest economy. It is also the epicentre of global manufacturing. What happens in China impacts the world.

In 2023, I anticipate that we will see an easing of Covid restrictions but a rise in Covid cases. This will affect the entire country, and factory workers are no exception. I predict that in 2023 we will see disruptions in factories and ports due to Covid. This will slow shipments and production but not to the degree we experienced last year.

Global Trade

Some major retailers are asking their sources to move production out of China due to concerns that if China invades Taiwan, it will result in a cut-off of China, like the shutdown of Russian trade due to the Ukraine war. Of course, the question arises, where do you move your production to? If you move it to your home country, it's called reshoring. If you move it to a geographically nearby country, it's called nearshoring. If you move it to an ally, it's called friend shoring.

Likely alternatives to China (Cambodia and Vietnam) lack sufficient population - and Vietnam is at capacity. Cambodia and Vietnam together have 8% of China's population. With its vast population, India is a candidate, but there are challenges in terms of infrastructure and bureaucracy, and if you want to move production back to the US or western Europe, you are facing labour rates that will price you out of the market. So, I predict that in 2023 we will see little in the way of reshoring, nearshoring, or friend shoring. No country in the world has the manufacturing infrastructure to take over from China. That is the reality of global trade in the 21st century. No matter what happens in 2023, I hope your year is healthy and prosperous.

Richard Gottlieb - Richard is the founder and CEO of Global Toy Experts, a consultancy to US and international toy companies. He is also the publisher of Global Toy News, a web-based magazine founded in 2009 that covers toy industry news and provides resources to the toy industry. Richard co-hosts The Playground Podcast and publishes The Toy Intelligencer report.