Kavan Choksi: Economy's Effect on Household Wealth

Kavan Choksi on the Economy and Household Wealth

The geopolitical events in the past 15 months alone have affected the investment landscape and the economy substantially. These include the armed conflict between Russia and Ukraine, the political upheaval in the UK, and the protests in China over its zero-COVID policy.

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Amid the uncertainty, freelance business consultant Kavan Choksi points out that many of the expected economic assumptions that have led into this year still hold. The historically low-interest rate environment led to extremely high inflation. It may have been hard to predict, but Kavan Choksi says it certainly did not come as a complete and utter shock.

While we can't predict future geopolitical events with utmost precision and the exact direction of the economy throughout the following year, we can assume a few economic realities. We can also forecast a few factors investors should consider as we navigate the rest of 2023.

One of these factors, Kavan Choksi notes, is the effect of the present economy on household wealth.

The effect of the economy, specifically the inflation rate, is already being felt by households. The confidence of consumers has already decreased because of this. Interest rates are still increasing, at least for now.

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While households can often delay borrowing, albeit temporarily, for large purchases such as real estate properties or even a new car, higher borrowing costs will inevitably take their toll on household wealth. If you combine that with potential layoffs, the typical household will most likely feel the pressure from the slower economy, explains Kavan Choksi.

It may lead to lower amounts set aside for savings and investing. It may also translate to possible redemptions from retirement accounts. All these technical factors may play a huge role in equity and debt prices outside corporate fundamentals. That said, depending on the depth of a potential recession, investors should keep an eye on household wealth.

For insights on business, economics, and finance, follow this page for freelance business management consultant Kavan Choksi.