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maltatoday | SUNDAY • 1 JANUARY 2023 8 NEWS to try and tame the crypto system through consumer protection reg- ulations. Whether they will succeed is another story altogether. 14. Heat waves, ice spells and floods The impacts of climate change will continue to be felt all-over the world. From suffocating, longer and more frequent heat waves in the summer to massive cold storms in winter; from rivers running dry in some months to unspeakable floods in others, climate change will continue to put the lives of 8 billion humans at risk. 15. Airport junction works reprieve Works on the two massive road projects outside the airport and Luqa will finally come to an end by June, bringing reprieve to residents and tourists alike. The flyovers and tunnels will provide seamless travel to and from the area but pressure will increase to solve the bottleneck at the Qormi roundabout known as Tal-Imgħal- laq. 16. Malta on the Security Council Malta takes its seat at the UN Se- curity Council in January for the start of its two-year term. This is only the second time that Malta will sit on one of the UN's highest decision-making bodies, the other time being 1983-84. Malta's stated goal is to be 'a voice for justice, moderation, understanding and tolerance' with a commitment to global dialogue. How to do this at a time of heightened global ten- sion remains to be seen. 17. King Charles III coronation The coronation of King Charles III will take place on 6 May at West- minster Abbey to much fanfare NICOLE MEILAK WE entered 2022 with promises of eco- nomic hope, in what was expected to be a year of booming commercial activity as countries planned out pandemic exit strategies. But the hope quickly dimin- ished when Russian president Vladimir Putin announced his 'special military operation' in Ukraine, wreaking further havoc to supply chains already strained from COVID-19. Gas supplies were al- so put under pressure, hampering full economic recovery in many in coun- tries. MaltaToday spoke to three econo- mists – Clint Flores, Stephanie Fabri, and EY's Ronald Attard – to see which factors will continue to shape the local economy next year, and what new fac- tors could crop up in 2023. 1. War In Ukraine Attard: It is impossible to say when the war will end. Of course, the first thoughts go out to the people in Ukraine who face the immediate and brutal consequences of war in their country. But there are also econom- ic consequences of the war across the globe including Malta. These conse- quences include supply bottlenecks, raw material shortages, increases in en- ergy prices (which have been shielded to date in Malta) and inflation. And as a consequence of inflation, increased interest rates… Flores: The war in Ukraine and its outcome after this winter is what will mainly affect the world. Indeed, gas shortages in Europe and persistent inflationary pressures might send the eurozone economy into a recession. Normally in a recession inflation sub- sides. However, economic shocks will definitely affect the euro currency and its governance. Certainly, the main attention would primarily fall on Italy's debt stock and Germany's industrial production shortages which would limit the latters growth due to the gas dependency of its economy. The Italian and the German econo- mies are two of the largest in the eu- rozone and thereby they can affect the stability of the currency. If the euro depreciates due to persistent econom- ic shocks, and in tandem inflation does not subside relative to the global inter- est rate hikes due to supply side short- ages, imports would become dearer. This means that in the medium term, inflation will persist, risking a stagna- tion in Europe's economy. […] Unless a peace agreement is found, global stability won't be restored. We are going to see additional conflicts in 2023 in many regions around the globe. 2. The Labour market Fabri: In Malta and across the EU, the labour market has been experienc- ing shifts in terms of high demand and low supply. This labour market situa- tion has been putting increasing pres- sure on the economy through high- er business costs and higher demand amongst other factors, which spiraled inflation. A calmer labour market sit- uation is highly unlikely and this this will continue causing economic stress amongst market players, especially giv- en the wide-ranging disruptions that are shaping and occurring throughout the world of work. 3. Reactions to interest rate hikes Attard: As the cost of capital contin- ues to go up following the successive hikes in interest rates put in place by central banks, 2023 will see companies, households and investors deal with the full impact of this change in monetary policy stance. We'll see: increased in- terest in the bond market as coupons are again going above the 5% mark; companies trying to offload certain assets as bank funding takes its toll; and companies looking at acquisition opportunities to sustain their growth plans. The cost of capital is also going up for governments, which are also battling higher deficits due to the pandemic and the impacts of the energy/inflation crisis – this will mean increased oppor- tunities for the private sector to assist in co-funding some projects of a pub- lic-private nature. 4. Inflation Fabri: The implications of COVID-19 and the Russia- Ukraine war on infla- tionary pressures over the recent years have had a significant impact on gov- ernments, businesses, and consumers. This is a result of supply-chain shortag- es caused by these events and a concoc- tion of other economic factors through which their interplay caused economic pressures. Some experts are predicting that the worst is yet to come whilst others are stating that wage growth will be high- er than inflation in the coming year. If inflationary pressures persist in this significant manner, they will continue having an influence on the quantity, and quality of investment and other market choices by businesses and con- sumers. It will also be more difficult for gov- ernments to focus on the long- term economy in relation to environmental investment and digitalization. There also the possibility that these inflation- ary pressures will weigh on growth and lead to stagflation. Flores: Inflation might persist longer than expected as it is a supply side problem not a demand side. If that is the case, then we might risk longer pe- riods of inflation even in Malta. The Eu- ropean economy and its labour market is different to that of the US. Wages in Europe are sticky downwards relative to that of the USA's labour markets. Due to the gas shortages in 2023, some companies might need to read- just their production levels. This might create a shortage in private investment. Capital has already become more ex- pensive due to higher interest rates and therefore private investors might post- WHAT LIES IN STORE FOR THE ECONOMY IN 2023?