Monthly Memo: January 2023
Evolution Partners
Strategy | Transformation | Operations for the Financial Services industry
Monthly Memo: January 2023
Welcome back to Evolution Partners' monthly newsletter, The Bottom Line. With this series, we hope to provide you with insights into the latest news this month, from finance and technology to ESG. We also provide updates on our team and company news.
We'd love to know your thoughts - get in touch and leave a comment below. Tell us what struck a chord with you this month, and join the conversation.
Welcome to the first newsletter of 2023!
"Climateflation" by Analyst, Caitlin York
In October 2022 the UK saw its inflation peak at 11%. Since then, inflation has decreased, now sitting at 10.5%, but remains way above the UK government’s 2% target and Rishi Sunak’s ambitious promise to halve the UK’s inflation rate by the end of 2023. The recent COVID-19 pandemic and the ongoing war in Ukraine have also pushed inflation in many other countries to the highest levels in over 40 years and above the targets of almost every central bank in the world.?
The pandemic’s adverse effect on global productivity and trading, and the war in Ukraine’s continued influence over food and energy prices are key contributing factors to global price increases. But there is another generally overlooked factor that may be having progressively negative impacts on inflation, and that is ‘climateflation’.?
Climateflation is “the frequency of extreme climatic events (such as fires, floods, and extreme changes in temperature) that have a significant impact on the prices of certain goods”. Often climate change is overlooked as an economic issue and only addressed as an environmental, social or health concern. However, as the author of Climatenomics Bob Keefe argues, the “fact of the matter is climate change is battering our economy”. The increasingly extreme weather events caused by the climate crisis are contributing to the recent sharp rise in food prices, as well as affecting productivity, energy and water distribution, and supply chains. Morgan Stanley found that climate-related disasters cost the global economy $650 billion between 2016 and 2018 and have predicted this to worsen if monetary policymakers do not begin to factor in its impact on the economy. It is important that central banks and policymakers begin to truly consider the climate as an ‘economic shock’ that needs to be monitored and assessed if countries are to reach their inflation targets.?
The European Central Bank argues that failing to address climate change could lead to higher inflation. Climate change is currently only really impacting food prices, however, unlike other economic shocks, it presents monetary policymakers with new challenges as its severity and longevity are unknown, and its global dimensions make it unpredictable. As we move to low-carbon, net-zero societies, in the short term this transition could also be costly as carbon and GHG emissions taxes will be reflected in consumer prices, and the mineral-tensive nature of creating green tech will create a boom in demand for minerals that cannot be met. However, longer term, the move to clean energy could reduce the average cost of energy for households and firms and the development of green tech could boost economic growth and productivity. A well-managed and regulated ecological transition could mean inflation could remain low, even if extremes in weather continue, helping economies remain more financially stable. ?
https://blogs.worldbank.org/allaboutfinance/inflation-and-ecological-transition-european-perspective?
Health and Wellness Trends in 2023 and Beyond
Over the last few months, Evolution Partners has been committed to helping our Financial Services (FS) clients widen their presence in the Health and Wellness space, improving the physical, mental and physical health of their customers. In 2023 and beyond, we expect Health and Wellness will be an increasingly important and strategic investment for FS firms where in particular, the following trends will continue to grow and develop; data, engagement, personalisation, mental health, financial health.?
This month, we explored these trends in detail in both our White Paper and S3E5 of our podcast, “Evolutionary Exchanges”.?
Here is a link to our White Paper
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Our Predictions about 2023
In January 2022, our UK Managing Partner, David Powell and Consultant, Emily Capon came up with a number of predictions about key world events they expect to see in 2023. They reflected on their hypotheses at the end of last year and have since made some new predictions about what they expect will have occurred by the end of this year.??
1) The US, EU and UK will all experience recessions during 1H 2023. The UK will remain in recession during 2023, with US and EU returning to growth in 2H 2023.?
UK GDP fell by 0.2% in Q3 of 2022, which brought a trend of five consecutive quarters of growth to an end. This, we think, augurs continued economic contraction in the UK, caused by high inflation and rising interest rates. The euro zone and the US are likely to fall into recession for similar reasons, with inflation reaching a head at the end of 2023. In the US, recession is expected in 2023’s earlier months, but growth is predicted later in the year as inflation rates fall.?
2) Europe will experience its hottest summer ever
2022 saw Europe’s hottest summer ever, with intense heat waves producing soaring temperatures up to 40-47?c. These extreme temperatures led to severe droughts and wildfires across Europe, affecting agriculture, river transport, and energy management. According to the World Meteorological Organisation, 2023 is already on track to be warmer than last year on a global scale. So, we predict that Europe will experience its hottest summer ever in 2023.
3) China will grow rapidly from 2Q 2023 and annual growth for 2023 will exceed 6.5%
China’s growth is predicted to increase to 4.9% this year, before it begins to steady in 2024. As lockdown measures have begun to ease in China, we predict that its aim will be for at least 5% economic growth during the year, possibly to help negate some of the effects of years of COVID on lockdown on the Chinese economy.???
4) Bitcoin will be below $15k by the end of the year
Bitcoin had a roller coaster ride in 2022, and it looks like 2023 will be no different. This time last year Bitcoin was successfully sitting at roughly ￡37,000 but is now worth just under half that. While some die-hard Bitcoin investors remain hopeful, we are siding with those more pessimistic about its future. With inflationary fears, Ripple’s SEC lawsuit, bankruptcies, and the banning of crypto transactions in China, we predict Bitcoin will fall below $15k by the end of the year.?
Our Student Ambassador Scheme
In November of last year, Evolution Partners launched our very own Student Ambassador Scheme, through which we have been looking to recruit students from UK universities to represent us.?
There are no restrictions in terms of degree discipline or year of study, though applicants must have a clear interest in consulting. In return for being a point of contact for Evolution Partners at your university and helping us navigate careers events (both online and in-person), we will give our Ambassadors a comprehensive insight into the overall consulting market. With one-on-one coaching with an EP Partner, you will receive invaluable experience at a boutique management consultancy, with the ability to contribute Thought Leaderships and guest on our podcast, “Evolutionary Exchanges”. Additionally, we are looking to host a one-day training session in London, where travel expenses will be paid and an opportunity to intern with us in the future will also be available.?
If you are interested, please do get in touch and email us on [email protected]?
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