The global economy is transforming and evolving expeditiously. With the environmental crisis, mass layoffs, war, geopolitical difficulties, inflation, potential stagflation, fear of an alleged looming recession, and market crashes, 2022 seemed to be a challenging year, indeed.
Yet, we shielded ourselves resiliently and will continue to endure, persistently.
As the year of uncertainties comes to a close, 2023 brings a new hope of stability. Technology is advancing and consumers are adapting to a plethora of changes. With new regulations in place, businesses that identify and capitalize on the emerging and promising markets of 2023 will take precedence over their rivals.
Upon closer inspection, the triumphs and woes of the current market will help in understanding and forecasting the fastest-growing industries that will boom in 2023.
2022’s highest-yielding industry was Energy. According to Fidelity, this sector managed to deliver total returns of 58 percent YTD compared to the unsatisfactory industry of Communication Services losing 36 percent (Alphabet, Meta and Netflix are a part of CS).
Growth has been outperformed by value, in the 2022 sector of stocks. Look out for the forecast of the best stocks of 2023. Investors should navigate the market smoothly with a blend of the existing successes and identifying growth-promising potential sectors.
FASTEST-GROWING INDUSTRIES IN 2023:
Revenue growth potential, the demand for investment, and macroeconomic factors (technological developments, spending patterns) are a few of the determining particulars of sectors that will boom in 2023.
While the new year is expected to hover in its predecessors’ shadow of volatility, several industries unveil opportunities for immense growth.
Healthcare and the EV market will attract investors and sustain an exponential graph of growth and innovation.
In this piece, we catalog the fastest-growing industries set to thrive in 2023.
ENERGY:
In 2022, the Energy sector beamed with surging demand and a tight supply which ramped up high energy prices. It was the S&P 500’s best performer with a hike of 58 percent year-to-date. According to Fortune Business Insights, the Energy industry is expected to grow from $49.58 billion in 2022 to a staggering $80.77 billion by 2029.
As economies continue to recover from the pandemic, the demand for Oil and Gas is predicted to grow more swiftly. The cost of living and inflation was rising partly due to the soaring prices of the energy sector.
The supply chain of global oil and natural gas struggled due to low investments in production capacity over the years. Oil and Gas inventories have been running low due to the economic crisis of Ukraine-Russia’s political climate.
This dynamic of demand-supply affirms that energy services companies could experience a year full of solid profitability. Dow Jones Market Data reveals that the S&P 500 Energy Index is on the momentum for exceeding previous high records.
“Oil and Gas may have been the best performing industry of 2022, but it owes its success to other sectors’ downfall.” :~Craig Erlam, Senior Market Analyst.
Potential Growth Stream: Upstream energy producers, which means companies integrated between production and refining will be well-positioned to attract international investments. Year after year, S&P’s Oil producers like Marathon Oil, Devon Energy and Chevron have leapt up around 39 percent. Warren Buffet’s Occidental Petroleum surged an astonishing 115 percent.
Potential Risk: The sector may be affected by a reduction in demand and a drop in energy prices, should a global recession or a new Covid wave occur. A report from the Economist Intelligence (EIU) suggests that extreme weather conditions and low gas supplies may eventually influence countries to turn back to fossil fuels like coal.
HEALTHCARE:
The Healthcare sector in the U.S. performed exceptionally in 2022. The industry is neutral to perform efficiently in any state of the economy because it’s a bare necessity.
Prioritizing the segments of medical research, innovation and technology, the revenue estimated was $2829.6 billion according to Statista. The earnings of healthcare companies have grown by 11 percent over the last three years.
NASDAQ reported that major institutions are in a debate about the outlook of the healthcare sector in 2023. While some anticipate a dwindle in Covid-related revenue, the healthcare sector could be bearish into the next year; whereas UnitedHealthcare expects to move forward with a growth range of 13 – 16 percent.
Large-cap pharma companies relatively hold steady businesses which can help them tackle rising costs and weaknesses in growth. In August 2022, The US Inflation Reduction Act (IRA) brought a 3-year extension for enhanced subsidies on the Affordable Care Act, which is advantageous to health insurance companies.
Potential Growth Stream: Another strong suit which saw some promising results was the segment of Drug development and innovations soaring across the sector. Resilient to inflationary pressure, life science subsidiaries have a firm pricing power due to the highly-specialized nature of their product line.
Potential Risk: With the upheaval of inflation and a shortage in clinical staff, the Healthcare sector can face challenges that can aggravate inequities. Endpayers may have to face affordability uncertainties as providers deal with the strained dynamic of less margin.
CONSUMER STAPLES:
The Consumer Staples industry proved itself to be a defensive sector by outperforming the market despite high input costs. As the rate of unemployment remained stable at 3.7 percent throughout the year, most consumers were able to hold high levels of savings, which made them eligible for affording high-priced grocery items as well.
A mild recession is expected to occur in 2023 and weighs in on consumer staples’ stock, which is bound to perform favorably. Consumers will proceed to keep purchasing the everyday basics like personal items and food and make this sector dually benefited by consumers spending, with or without hikes in inflations and interest rates. The demand for consumer staples is consistent even with economic downturns and this makes the sector more resilient than others.
While the industry can withstand better than other sectors during headwinds, it is not completely invulnerable to the slowing economy.
2022 saw aggressive hikes in prices everywhere and made the consumer grow accustomed to it. The price of Oil, the commodity highly regarded in several household products and packaging, was increasing and threatened the sector.
Companies lost sales when consumers shifted to products with a cheaper private label (sold under a store’s own brand). Though some sectors may deal with concerns about private labels, sectors like the Soda industry dominate their market and cannot be traded for cheaper alternatives.
2023 may witness the continuation of consumer staple companies raising prices due to rising costs.
Potential Growth Stream:
Emerging-market countries have battled inflation for decades and a swift-growing middle class will lead to higher per-capita growth in contrast to developed nations. Consumers in these countries have long accepted the high prices and cannot be swayed to change their purchasing decisions based on hikes. Consumer Staple companies need to smartly navigate the rocky terrain by diving into cost-saving promotions.
Potential Risk:
The high-yielding industry is typically anchored to steady, low-risk businesses. To fend off competition and drive revenue consistently, companies need to target the ever-evolving preferences of customers. To offset the rising costs of labor and goods amidst inflation, consumers may not accept increased prices for specific brands which may squeeze the companies’ profitability.
EV MARKET:
The EV Market has built their road to glory with investments in billions from automakers and policy initiatives from governments. 2022 endured EVs tenacity of entering the mainstream auto market.
According to Statista, the global revenue of the mobility industry is estimated around $384 billion in 2022.
With the perennial tax incentives and rising costs of fuel, the revenue of the EV Industry is set to expand. A report by EIU states that the sales of EVs will gleam in 2023, growing year-on-year to 10.8 million units.
There has been a shift in preference – Consumers are now veering towards environmentally friendly products and this benefits the hybrid auto and EV demand, alike. According to predictions by McKinsey, EV makers may produce 400 new models in 2023. Automakers are likely to introduce newer models to continue captivating the consumers’ interest and corporations will maneuver reduction in emissions and carbon footprints.
While a majority of vehicles are still powered by fossils, the transition to EVs has been significantly sharp and rushed. Toyota CEO, Akio Toyoda questions the rush to adopt EVs and wants automobile companies to slow the pivot.
Owing to the raging climate crisis, EVs went into overdrive by breaching 6.7 percent of the Automotive Market, from a meager 1.8 percent in 2019. Analysts at J.D. Power foresees this market share will accelerate to 20 percent in 2023 due to IRA (Inflation Reduction Act).
“By 2030, the US EV Fleet will be more than 20 percent larger than previous forecasts.” :~BNEF
IRA embodies a tax credit of up to $7500 for new EV purchases, $4000 for second-hand EVs and $40000 for commercial heavy-duty EVs. This sanction has attracted about $40 billion in expansion plans with 15 new EV battery plants.
Potential Growth Stream:
In 2023, there will be an uprise in charging infrastructure, energy transmission and storage. To facilitate smooth running and maintenance, these ancillary services will gain investment from private and utility firms and the government. The rising hybrid and EV makers in the market are Tesla, Honda, Ford, General Motors and Toyota.
Potential Risk:
The switch to hybrid and EVs is substantial but the industry revenue is expected to be slow due to an anticipated decline in the price of crude oil.
Industry experts and analysts demonstrate that the obstacles buoying the EV industry in the United States and Europe are the dearth of public fast-charging and the shortage of key materials such as nickel, aluminum and lithium which is surging the cost of EV batteries.
RENEWABLE ENERGY:
Since the dawn of the industrial revolution, the manufacturing sector heavily depended upon fossil-fuel energy. Now, as mankind focuses on minimizing global carbon emissions, the challenge for the energy-intensive industry is to remain economically effective and cost-competitive. The market size of the global renewable energy industry was estimated at $1030.95 billion in 2022.
7 percent of the demand for global energy is fulfilled by the renewable energy industry, at present. According to Deloitte’s 2023 Renewable Energy Industry Outlook, the industry is bound to thrive, despite rising costs. Renewable Energy consumption will surge about 11 percent during 2023, with Asia (China, Japan, South Korea and India) leading the transition. The capacity for solar and wind energy will retain its strength and propel the renewable energy sector consumption towards an annual average growth of 10 percent over the next decade.
For the first time, the contribution of renewable energy sources to the US electricity generation amounted to 22 percent in 2022 and is expected to rise to 24 percent in 2023 as the electricity generation reduces its dependence on natural gas from 38 percent in 2022 to 36 percent in 2023.
The government is proposing initiatives to adopt green energy and raising awareness of the long-term detrimental effects of fossil fuels on the environment. The rise in industrialization in developing countries is expected to foster the demand for global renewable energy sources.
COP27’s Sustainable Goals highlight that businesses must collaborate with countries to mitigate the effects of climate change.
Potential Growth Stream: Through 2022 – 2026, Solar Power is anticipated to expand to hold 50 percent of the World’s electricity capacity. The world’s renewable capacity is predicted to increase by over 60 percent from its levels in 2020, which is more than the combined present total capacity of fossil fuels and nuclear energy.
Potential Risk: High-interest rates will slow the momentum of energy transitioning as it will hike the costs of financing renewable energy projects, further affecting vulnerable countries disproportionately. The boom in the prices of commodities may even diverge investment interests towards fossil fuels.
AIRLINES:
As people move back to normalcy, the demand for travel continues to thrive. In 2022, the Aviation Industry experienced a lower loss of $6.9 billion in contrast to its losses in the preceding two years due to the global pandemic.
The International Air Transport Association (IATA) expects the airline sector to return to long-awaited profitability in 2023. The projected global net profit for 2023 is $4.7 billion of the total revenue of $779 billion.
EIU suggests that global tourism arrivals are expected to rise by 30 percent in 2023 following a growth of 60 percent in 2022, but not return to its pre-pandemic levels of profitability.
North America emerged as the leader on the airline front in 2022 followed shortly by Europe and the Middle East as American carriers had to face fewer operational restrictions which were less strict in contrast to the other countries in the world. European carriers will bounce back to projected profitability of $621 million in 2023.
IATA surveyed 70 percent of the flight catchers, who were traveling more than they did before the pandemic in 11 global markets.
Potential Growth Stream:
Many airlines are attracting investments as they move forward towards decarbonization. Flexibility can ease the cost balance between lower oil price inflation and rising demand for travel.
Potential Risks:
Amidst economic uncertainties of inflation, high costs and fuel prices, labor shortages, and inconsistent regulations, the threat of an impending Covid wave can dampen the spirit of the turbulent flight carrier market. The journey to profitability is predictably slow. The risk of economies diving into a recession could slow down the demand for passenger flights and cargo services.
ARTIFICIAL INTELLIGENCE:
AI made colossal strides – from natural language processing to being adopted into businesses’ decision-making. The Global Artificial Intelligence industry is estimated to be worth $328.34 billion in 2022.
By 2030, it is estimated that AI will contribute significantly to the global economy by an incredible $15.7 trillion. 70 percent of growth is expected to come from North America and China. This economic growth can be credited to product enhancements which persuade more people to buy AI products.
As the technology integrates itself into mainstream products like cars and phones, AI is set to transform other sectors such as Automation, Cybersecurity and Augmented Reality by showcasing its capability of performing a plethora of tasks and evolving to learn large language models.
AI took the market by storm by advancing in synthetic data and raised scrutiny on whether deep-learning models like ChatGPT could replace the Google search engine. The key applications of AI in businesses is to improve AI ethics, bias detection, automate routine tasks and analyze situations with the aid of simulation modeling.
“Artificial Intelligence is no longer a futuristic technology. It is legitimately here to shift paradigms.
In Automation Industry:
The global robotics market is projected to grow to $30.8 billion by 2027 from $15.7 billion in 2022. The automation industry expects an increase in capital investment and proliferating demand due to the usage growth of AI in robotics.
In the Cybersecurity Industry:
The international cybersecurity market is anticipated to grow from $173.5 billion in 2022 to $266 billion by 2027. One of the key applications of AI in business is to manage fraud and cybersecurity threats. As more and more businesses connect their digital transformations, the risk for cyberwar increases as hackers now have more ground to hijack.
Potential Growth Stream:
2023 could see Algorithms developed to be used at strategic levels to bring about fresh business models.
Forbes asked ChatGPT itself for the most-awaited aspect of AI and it said: “Transparency and Explainability”. This could signify that new techniques are in place to be developed to create interpretable and transparent models for AI Systems.
Potential Risk:
Deep-learning models may be too limited to achieve human-like intelligence and may require development in contextual leads. In the US, even though innovation is revered more than regulation, FTC is taking steps to hold companies with discriminatory algorithms accountable. Europe is likely to push an AI Act which will ban high-risk cases before they land in the market.
