With geopolitical uncertainty, rising rates and high inflation, it’s been a challenging macro environment for companies and investors to navigate. However, the new year brings opportunities to shape the new economy, according to Nasdaq Chair and Chief Executive Officer Adena Friedman.
“The year ahead brings tremendous opportunity for an economic and societal reset; one that seeks to rebuild trust across our institutions, one that focuses on sustainable growth over growth-at-all costs, where responsible innovation flourishes and where the confidence of investors and consumers is not only protected but prioritized,” Friedman wrote in her annual outlook, “2023: The Building Blocks of The New Economy.”
While the prospect of a recession remains unknown, Friedman believes within the next three or four months we will have a better idea of what interest rates will look like.
“What people really want is a known environment,” Friedman said during an interview with CNBC at the World Economic Forum Annual Meeting in Davos, Switzerland. “They want to understand their cost of capital.”
She says that companies are eager to gain a better grasp of the economic environment to help them in terms of underwriting investments, while investors are eager to better understand the environment so they can make informed investment decisions.
“If we can get to that point where we have a known interest rate environment, even if inflation is still a little elevated, I think we can operate in that environment for a long time,” Friedman told CNBC. “Hopefully, we can skirt a recession, but even if we live in one for a little while, we’ll know the environment and that creates a better environment for investors.”
Notably, Friedman acknowledged that while the U.S. has experienced relatively low interest rates for the past 14 years, for decades prior, we had had anywhere from 3% to 5% interest rates, and still managed to have a vibrant, growing economy.
One seismic shift she expects for the foreseeable future is the notion that “money is no longer free,” adding that this change is likely to scale back the “growth-at-all-costs” mindset we have become accustomed to.
“The cost of capital is real. Access to capital is going to have some sort of consequence that will make it so companies are making more discerning investment choices,” Friedman said during her CNBC interview.
She expects companies to become more focused on cash flow and for investors to become increasingly more interested in companies that are able to show they have profitable growth or at least a clear path to profitability.
In response to whether she believes this new mindset will stifle innovation, Friedman told CNBC that “instead of letting every sprout grow, you’re going to choose which sprouts are going to grow into trees, and you’re going to really go hard after those.”
As far as other trends, in her 2023 outlook, Friedman wrote that she expects the digital transformation of the economy to continue. She believes companies will continue to focus on making strategic use of their data and infrastructure in an effort to work more efficiently and to “do more with less.”
She also wrote that automation, artificial intelligence (AI) and the development and regulation of the digital asset space will be key themes in this new economy.
As supply chain challenges, labor shortages and digital-native consumers are at the top of mind for most CEOs, Friedman believes that automation is key to survival. Companies are going to continue to advance technologies to improve internal productivity and enhance client outcomes.
With cloud technology being broadly adopted across industries, she also anticipates growth in the AI-based technology sector. As stated in her 2023 outlook, Friedman believes that by embracing, rather than fearing, the progress that technology enables, we can unlock a new world of possibilities. She adds that the combination of AI and cloud will enhance the financial system’s ability to combat financial crime – something that is known to rise in economic downturns.
But as we continue to see breakthrough technological advancements in the financial world, innovation without accountability can have dangerous consequences. Friedman cited the recent fall of FTX as just another example of what happens in a market when there is no regulation.
“Trust is earned over time, and yet it can be lost in an instant,” Friedman said.
She asserts that the crypto world would benefit greatly from a reset, which starts with establishing clear regulatory oversight. Nasdaq’s recently launched Digital Assets business will focus on driving broader institutional participation in digital assets by providing trusted and institutional-grade solutions— a move that aligns with Nasdaq’s vision to become the trusted fabric of the financial ecosystem.
“You have to think about regulation as helping create sustainable, high-integrity, trusted markets,” Friedman said.
As noted in her outlook, she believes we can use this next year to rebuild trust across institutions and focus on sustainable growth over “growth-at-all-costs,” where responsible innovation flourishes and where the confidence of investors and consumers in not only protected but prioritized.
“2023 will be marked by how well we absorb and build upon the realities of this new economy,” Friedman wrote in her outlook. “For us at Nasdaq, we will continue to drive toward a common goal across all of our constituents – to ensure our financial system works better for everyone – ultimately driving more equitable economic progress for all.”