Economic Expert: ‘Good Chance’ Of ‘Modest Recession’ In 2023

‘I would say that by the second and third quarter of next year—the middle of this year—the chances of a modest recession are quite high,’ says Dr. Douglas Holtz-Eakin, one of the nation’s top economists.

Former director of the Congressional Budget Office, Dr. Douglas Holtz-Eakin, expects a modest recession to hit during the middle of 2023 due to the Federal Reserve increasing rates, continuing inflation and uncertainty ahead with China and with Russia’s war on Ukraine.

“We’re going to see the Fed lean real hard on housing markets, it’s going to be a centerpiece of their efforts to tame inflation,” said Holtz-Eakin during his keynote at the XChange Best of Breed 2022 conference Monday. “So it’s going to be a tough time to be in the housing business. So will this cause a recession? Good chance of that.”

In addition, it appears China is in a recession right now, while there’s always the possibility of another new COVID-19 variant that could sprout up, said Holtz-Eakin, one of the nation’s top economists.

“I would say that by the second and third quarter of next year—the middle of next year—the chances of a modest recession are quite high,” said Holtz-Eakin, a former chief economist for the President’s Council of Economic Advisors under President George W. Bush. “Personally, I put it at about 75 percent [chance of happening].”

IT Industry The ‘Canary In The Coal Mine’

However, although a modest recession could hit next year, the IT industry is in good shape in 2023.

Holtz-Eakin said organizations of all shapes and sizes are spending their “real dollars in business IT.”

“IT is the core systems for not just their worker communications, but their audits and their financial services—all of that management stuff. So a lot of those companies took advantage of the pandemic as downtime when they could put in new IT systems,” said Holtz-Eakin.

In fact, Holtz-Eakin said when the IT business community starts to see an economic decline is when you’ll be able to tell a real problem is happening.

“So I’m worried about a recession when the business community falls. Until then, they’re spending on capital, they’re hiring labor, everybody’s getting paid. You don’t get a recession then,” said Holtz-Eakin. “So I think these [IT solution providers] are really the canary in the coal mine. When they start seeing it get weak, then we know we have a problem.”

‘Strong’ Economic Outlook For Solution Providers In 2023

For many solution providers, the economic outlook in 2023 looks solid.

John Teltsch, CRO of Converge Technology Solutions, a fast-growing Canadian solution provider, is full-stream ahead with growth in 2023 and beyond.

“We do understand that with everything going on with the war, with the devaluation of the currencies, that there may be some headwinds. But right now, the outlook for many of our businesses continues to be strong in 2023,” said Teltsch.

In North America and Europe, there is still “strong demand” for Converge Technology Solutions’ professional, managed and consulting services and solutions, he said.

Regardless of the economy, the company plans to continue increasing its revenue by $1 billion each year via acquisitions.

Teltsch said Converge Technology Solutions plans to roughly double its revenue over the next few years—with expectations to reach about $5.5 billion in revenue in 2025.

Overall Economy A ‘Concern Next Year’

Although the IT channel market looks to be solid in 2023, Holtz-Eakin said some of the economic data he sees in the broader market is worrisome.

“Almost without a doubt, we have an issue over the next 18 months to two years of recession and recovery—hopefully mild. And in the absence of anything other than the Fed policy, probably mild and relatively short-lived because they can reverse and undo a lot of pressure in a timely fashion and get the economy growing,” said Holtz-Eakin. “But it’s hard to believe that they won’t have some sort of recessionary pressures building up.”

The biggest thing the Fed is worried about and needs to fix to avoid a recession is inflation.

“The Fed believes, and I would concur, that the best way to get sustained high employment, sustained high growth, is to have price stability. They care about one and only one thing right now—that is getting inflation under control because they think that’s the path to better overall performance,” said Holtz-Eakin.

The XChange Best of Breed 2022 conference is being held in Atlanta on Oct. 10 and Oct. 11.