Brace for Impact: Economic Contraction ’23
Brace for Impact: Economic Contraction ’23
As we brace for impact of the inevitable contraction, what else is out there to help mitigate the pain?

Brace for Impact

As an economy grows and the market develops, at a certain point in time there is an inevitable slowdown led by contraction. We have seen this happen many times in human history, and we understand relatively well how to predict an upcoming economic downturn.

As experts and business leaders all brace for the contraction of the globally-integrated economies of developed markets such as the US, UK and EU, many of us wonder how to hedge ourselves against this inevitable risk.

While many promoters tout bitcoin or gold as "safe haven" investments, we have seen market movements which have proven most promoters wrong, and have heightened our worries about the future.

As we brace for impact of the inevitable contraction, what else is out there to help mitigate the pain?

Continuous Growth

Many emerging markets are unaffected by what is happening in the developed world, and in some cases they are positively affected due to specific aspects of their demographic structure and stage the economy is at.

More often than not, the primary influx of capital into emerging markets is their diaspora, -people who have migrated to developing markets where they work to save and remit funds back to their home country.

High wage discrepancies between developed and emerging markets make it possible for someone in an emerging market to sustain an affluent lifestyle on a budget which in the developed world would be considered blue collar.

When crisis hits developed markets, usually those who are laid off are replaced by cheaper sources of labor such as first generation migrants who are usually more resilient and leverage such opportunities to remit more funds back home by taking on more hours of work.

Meanwhile, fuelled by the cash influx from the diaspora, youth back home pursue higher education and specializations in their professions, therefore also creating opportunities to work remotely for companies in developed markets at more affordable rates. 

While the developed world witnesses contraction, emerging markets witness an opposite effect and continued growth. 

Some of the advantages making emerging markets more resilient:

  • Affordable labor force, both as migrant populations and back home.
  • Predominantly young population with skills and high education.
  • Small economic base enables two-digit GDP growth.
  • More market opportunities due to lack of entire industry sectors.
  • Continuous influx of remittance from diaspora and earnings from export of goods and services.
  • Quickly increasing purchasing power of local customers.