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The combination of a tight job market and a looming recession has prompted financial institutions to look towards digital technologies to reduce labour costs, improve worker productivity and do more with less.
With digital solutions identified as the way to stay competitive and grow, it is important to take stock of the economic conditions that will play a role in accelerating or slowing the inexorable trend towards digitization.
Cyclical Forces Impacting Bank Digitization
Most indicators point to a recession on the horizon, with inflation outpacing wages and consumption already impacted. They have inverted the yield curve since July 9, 2022, and history shows that anytime the yield spread line goes below zero, periods of recession follow. The real questions are when will a recession begin, how long it will last and how deep it will be.
The recession will likely begin by the first quarter of 2023. However, because of the strong labor market and financial sector, the recession should be shorter in duration and shallower than the previous two. The implications of these cyclical forces will be to accelerate the move to digitization, with businesses looking to deploy technologies to reduce labor costs, improve productivity of workers and do more with less.
Secular Forces Impacting Bank Digitization
In looking at the longer-term trends of the economy, there are several secular forces that will have a dramatic impact on digitization. Aging demographics, public debt, and technology-enabled disruption are the primary factors.
Aging demographics are causing the percentage of the population in the workforce to steadily decline, with workforce growth likely to continue to slow. Public debt is limiting the supply of credit in the world and driving up the cost of borrowing, slowing the economy. Technology-enabled disruption is accelerating the pace of technological change and driving businesses to advance digitally to remain competitive.
These secular trends will create structural challenges that will accelerate the need to digitize the economy. Businesses will have to advance digitally to remain competitive and ensure their workforce does the same. Lifelong learning and skills development will become essential to maintain and improve productivity and quality of life for workers.
In conclusion, financial institutions must be aware of both the cyclical and secular economic trends that will impact digitization. The use of digital solutions will not only allow them to stay competitive and grow but also address efficiency and productivity improvements in lieu of hiring. As the economy continues to evolve, the digitization trend will remain inexorable, and financial institutions must embrace it to remain relevant.
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