Headwinds in tech sector may not indicate widespread slowdown

Twitter saga is creating a lot of buzz around the world. Takeover of the social media platform by Elon Musk and subsequent restructuring is even arousing curiosity from those people who don't use it. Similar is the case for Meta (previously Facebook). Reports of Meta planning to fire thousands of employees are making big headlines across the world. Even technology giants like Microsoft, Apple conducting such cost optimisation moves through reduction of employee headcounts are not escaping scrutiny. These trends indicate global technology giants are facing much headwind after a period of hyper-growth during the pandemic. IT services companies have escaped the market slowdown so far, many experts, though, opine that 2023 may be a year of bumpy growth.

When technology giants are facing such cost pressure, it is normal to assume that whole economy may be in trouble. Hearteningly, that is not the case. There are pockets of growth areas. For instance, oil & gas sector across the world are being benefitted from high crude oil prices. Though it is bit ironic, the Russia-Ukraine war is acting as the major trigger for such high growth. Similarly, green energy sector is witnessing high activity as enterprises across Europe are pursuing initiatives for reducing their dependence on natural gas. Apart from energy sector, the unlocking theme post pandemic is still playing out strongly. Travel and hospitality sector is yet to feel the pinch of high inflation. Most hotels and holiday destinations across the world are buzzing with activity. This is providing some respite to travel segment, especially aviation. Despite high fuel prices, airlines are running full. Entertainment, especially outdoor entertainment, is another segment doing pretty well. Interestingly, consumption as a theme is yet to slow down. Retail sector- both ecommerce and offline retail- is witnessing robust growth. Despite pocket of weakness in retail sector, many economies including India is going strong on personal consumption.

Any war provides immediate growth opportunities for defence sector. In the wake of Russia-Ukraine war and subsequent reorientation of geopolitics, many member countries of NATO (North Atlantic Treaty Organisation) are increasing their defence spend. Germany is spending around $100 billion to modernise its forces, while Japan is expected to spend around $43 billion next year in defence sector. With such line up, sectors such as steel, aluminium, rare metals and engineering services companies are likely to see a positive spill over effect. Technology firms, semiconductor companies and related industries will also be major beneficiaries from the higher spend.

So, while hyperinflationary environment and the war are complicating global economic environment, there are pockets of strength seen in the global economy. Interestingly, US job data is still going strong amid the talks of an impending recession. Therefore, inferring a slowdown from technology sector meltdown in the US may not provide a correct picture. Though the dangers of a slowdown are real, there are many sectors which are providing support to the world economy. So, the final judgement on recession is yet to be pronounced.