Recession or recovery?

Picture of John Denslinger
John Denslinger is a former executive VP Murata, president SyChip Wireless, and president/CEO ECIA, the industry’s trade association. His career spans 40 years in electronics

In this article, John Denslinger reminds readers that even in a recessionary environment, next-gen electronics technologies and applications will still see growth.

Forecasting 2023 is a challenge given so much economic uncertainty. Will it be recession or recovery that dominates the calendar? It’s anyone’s guess as there seems to be no common path forward. A prolonged contraction suggests a year of sluggish economic growth. But, if the Fed can tame inflation, minimise employment losses, stabilise consumer and financial confidence, and do it quickly, a second half recovery is possible.  

On the macro level, the economy is either transitioning or in trouble. While consensus US GDP hovers around 2.5 per cent for 2023, recent comments by Goldman Sachs actually pin GDP for 2022 at a flat zero per cent with slight improvement to 1.1 per cent in 2023. Their outlook has the Fed tightening at a higher rate in an attempt to drive down inflation sooner, in effect, reducing 2023’s potential rate of growth. 

Former Boston Fed president, Eric Rosengren, offers this assessment: a mild recession is coming in 2023. He goes on to say, measures stemming inflation will also weaken the labor market and slow nominal wage growth. Either tends to stifle overall demand. With further fiscal stimulus and key regulatory relief unlikely, easing the recessionary impact will rely solely on monetary policy. In other words, the decisions made by the Fed will set much of 2023’s economic landscape. 

As for the electronics industry forecast, even the optimist must weigh the realities of inflation and the possibility of recession suppressing demand in the near term. At the same time, our industry benefits from new markets made possible by several next-gen technologies. It is our electronic components, modules and services that enable technologies like 5G, smart devices, IoT, AI, EV, edge computing, secure data storage, smart environs, robotics and more. Even in a recessionary environment, these applications will see growth. It’s also worth noting the component count/device is always greater on next-gen. Definitely, this is a nice counterweight to what could be an otherwise gloomy 2023 outlook. 

Semiconductor is the bellwether component of our industry. Market forecasts are plentiful. This year, it’s obvious some analysts clearly anticipate a deep recession and understandably quite bearish about 2023. That being said, given the avalanche of next-gen technology on the horizon, two respected forecasters seem a bit more plausible for the American market. 

Gartner’s recent 2023 semiconductor forecast shows a decline of 3.6 per cent, while WSTS’ autumn forecast projects a year-on-year growth of 0.8 per cent. Let’s face it, neither outlook is great. The difference between the two is just a few degrees of perception: perception of recession length and severity; inflation mitigation and timing; supply and demand rebalance; geo-political volatility; labor availability and productivity; capital spending for next-gen technology; and finally, confidence in the Fed’s soft-landing approach. 

Some final stats to consider: From a June high of 9.1 per cent, we enter 2023 with inflation at 7.8 per cent (October report) and nowhere near the Fed’s North Star target of two per cent. The Fed Fund Rate after seven consecutive increases is in the 4.5 per cent range and destined to go higher through Q1 2023. Unemployment now hovers at 3.7 per cent climbing to five per cent by end of 2023. Wages are still rising inconsistent with past inflationary periods adding yet another question mark. Altogether they serve to diminish consumer demand and enterprise confidence. Until that sentiment is broadly reversed, the recovery may not manifest itself until 2024. 

Given all the low hanging clouds, the safe baseline might be a no-growth forecast for 2023. To be more aggressive, plan on taking market share from competitors and absolutely be prepared to win next-gen business.