Savannah Chamber

14 8 substantially from upward adjustments in assessed residential property values, but jurisdictions with high proportions of office and retail properties may not see much overall growth in property tax digests. Typically, assessed property values lag movements in market prices by several years. In 2023, property tax bases therefore will benefit from increases in residential real estate prices. Local governments' property tax bases therefore will be very supportive of revenue collections and in turn public construction. Businesses' Spending for Equipment & Software The immediate prospects for business's spending for equipment and software are poor. High interest rates are a negative for investment spending, more so for equipment than for intellectual property. Slower economic growth reduces both confidence and cash flow. High energy and labor costs coupled with slower top line growth will squeeze corporate profit margins. Low stock prices, a global recession, the trade war, higher corporate taxes are additional reasons why we expect spending for equipment and software to be more subdued in 2023. Another negative is that many companies took on a lot of debt during the pandemic. Low interest rates as well as the necessity to raise cash to survive the shutdown were responsible for much of the increase in corporate debt. Companies refinanced older debt to lower interest expenses and push out debt maturities, but often bond issuance exceeded the amount of debt retired. U.S. corporate bond issuance is at record levels relative to the size of the economy. Higher interest rates will encourage deleveraging, which reduces funds available for investment spending. Of course, many companies are sitting on large accumulations of cash which could simultaneously allow for higher investment spending and deleveraging. On the positive side, the pandemic accelerated several technology-centric trends ranging from remote work, to online shopping, to mobile banking, to telemedicine, and to video conferencing. These developments support spending for equipment and intellectual property and probably make such spending less cyclical than in the past. The accelerated adoption of many existing technologies, tight labor markets, and competitive pressures will push businesses to spend more for equipment and intellectual property. Once the recession ends, businesses' spending on equipment and intellectual property therefore will be a powerful driver of US GDP growth. A dire need to improve productivity will support such spending. International Trade Typically, the strength of international trade mirrors the strength of the global economy. In 2023, the global economy w ill be in recession. International trade therefore will shrink as international markets lose momentum. The main factors behind the global recession are high inflation, central bankers tightening of monetary policies to combat high inflation, and persistent supply disruptions. In addition, energy inflation bodes poorly for the global economy, especially high natural gas prices. Actual shortages of natural gas are possible, which could reduce output substantially in western and central Europe. China's zero COVID policy could further disrupt supply chains. In addition, geopolitical risks risks abound, including a broadening of the conflict with Russia and the tense situation between Taiwan and China. Uncertainty about COVID-19 as well as US trade policy adds some risk to the forecast for international trade, but less so than in 2021-22. We assume that the US-led trade war does not escalate, but we expect trade tensions will remain high and that tariffs remain in place. Protectionist trade policies are more prevalent domestically and globally, which is bad for trade, productivity, and inflation. Another obstacle to faster US export growth will be past appreciation of the US dollar. In 2023, the US dollar's value will be quite high, which limits prospects for US exports. The US dollar probably will depreciate slightly in 2023, but the depreciation will be minor compared to the appreciation that has recently transpired.

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