The New Economy Versus the Old Economy

The New Economy Versus the Old Economy: Winners and Losers in Tomorrow’s Built Environment How recession dynamics could shift risk factors across the various engineering and construction sectors

By Jay Bowman and Brian Strawberry

Trying to interpret which way the economy will go is confusing and uncertain, even for those whose primary responsibility is doing so. There are many competing views on whether we’re in a recession and how long it will last. One thing we are confi - dent in is that 2023 looks quite challenging. After analyzing the economic impacts for the engineering and construction (E&C) industry in our first paper, “ How Bumpy Is It Going to Get? Mapping Recession Scenarios,” we argue now that the question isn’t whether the economy is in recession, but what the end of the downturn might look like, how poli- cymakers will respond, and how long a recession might last.

Better case: A balanced correction lasting six to 12 months.

In this case, we expect inflation to peak in the second half of 2022, followed by a decrease to below the five-year average toward the end of the year and into 2023, aided by a drop in oil prices. This allows real wages, savings and disposable incomes to rise. Worse case: Severe overcorrection lasting two to three years. Economic events as outlined in the base case become severe enough to create stimulative policy and other conditions for prolonged and higher inflation.

In that paper, we presented three potential recession scenarios:

Base case: A correction lasting 12 to 18 months. In our most likely scenario, we outline the poten- tial for tightening of monetary policy that will reinforce economic contraction as well as a large hit to the job market and asset prices resulting in 12 to 18 months of recession.


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