The old normal is long gone. Let's make a new one

In fact, it's the year we have been shaken from the complacent dream of a return to normal. Despite the cloud of a global recession, 2023 should be the year we commit to creating a new normal.

While uncertainty was the term which most characterised the pandemic years of 2020 and 2021, today we are faced with the triptych of uncertainty, volatility, and fragility.

It sounds like doom and gloom, but the reality is that these conditions also set the scene for renewal and new growth in three main ways.

First, global inflation could stay higher for longer, unless there is an easing of the war in Ukraine.

An important precondition to peace is that one side comes to the realisation that the cost of war is just too high; that peace is worth it.

Right now, it is hard to see either Russia or Ukraine developing that posture.

For both, this war is tied up in nationalism and identity - particularly intractable conditions to disentangle so far into the conflict.

As a major energy producer, Australia will be somewhat insulated from energy price inflation when compared to other economies.

However, we will continue to be hit hard by general price hikes because our economic structure doesn't facilitate enough innovation or competition. But as in the 1980s and 1990s, an inflation crisis can create a catalyst for reform.

And reform we must because Australia's productivity performance has been in structural decline. Business needs to invest in new technology and innovation to become more competitive.

Australia's investment to GDP ratio is woefully sub-optimal and languishing at the low end of the OECD innovation table. It is not a great sign for future prosperity. Meanwhile, reforms to tax and competition are needed to reshape the economic structure of tomorrow.

Without such reforms, we won't build the economic platforms to drive productivity, growth, and jobs and create a new economic structure for the coming decades. Current economic value will continue to deteriorate, innovation will remain stifled, and entrenched oligopolistic market structures will keep prices higher than they should.

Second, because of COVID and geopolitical trends, supply chain disruption may be more profound than initially thought.

For example, the change in COVID policy in China is profound and the consequences will take some time to play out.

How our largest trading partner's supply chain handles a large spike in death rates remains to be seen, but you can be sure uncertainty will follow.

This uncertainty will compound with the growth of nationalism which is now reshaping global politics and will increasingly reshape global trade.

The unrelenting march of China under President Xi, the rise of India, the strongman politics from emerging economies now pervading established Western economies and democracies - are all new factors to figure in the remaking of the global political and economic architecture.

It is around this that value chains and alliances will form.

To take advantage of this, we need to play a more strategic geopolitical game.

Already the new Australian government is recognising this and moving deftly in this domain.

But this is a long game and is strategic - full of symbolism and structural shifts.

Third, the decarbonisation train has left the station and will structurally redefine the economies of tomorrow.

The economics of climate change show that the benefits of action far outweigh the inevitable costs of inaction.

And business and financiers are now driving this agenda which is, at its core, about the recapitalisation of the production system of the economy.

However, the transition is more of a race than a picnic. For example, the Inflation Reduction Act in the USA provides strong incentives for financiers to invest in US-based renewable tech.

This will significantly skew global investment flows into renewables such as hydrogen into the USA away from other regions of the world.

It will allow the US economy to shake off its decarbonisation lethargy and leapfrog its main competitors, including Australia, if we aren't careful.

This is why Australia must prioritise and accelerate the decarbonisation transition.

Even as we see a disorderly transition playing out due to inaction of recent times, investment must accelerate on both mitigation and adaptation fronts because Australia has the most to lose from inaction, and even more to lose if we get left behind as the rest of the world acts.

But with meaningful action, we have an enormous amount to gain.

Uncertainty, volatility, and fragility might well characterise our entry into 2023, but if we play our cards right with a common purpose to create value and prosperity, a new normal of our own creation will emerge.