Issue link: https://iconnect007.uberflip.com/i/1475010
38 SMT007 MAGAZINE I AUGUST 2022 increase the rate of return for private inves- tors. en you start to get attractive rates of return that would draw in private equity and others that are historically looking for much higher rates of return, like 30-, 40-, 50%-types of rates of return. It's hard for them to be con- vinced to move into certain parts of manufac- turing where it doesn't look like those rates of return could be realized. But if the investment is matched and essentially subsidized by pub- lic finance, by government, then those types of rates of returns become available. Washington is looking at that. e U.S. Commerce Department is really trying to understand the electronics indus- try. What's driving decisions within electron- ics manufacturing from the OEMs all the way up the supply chain. What meaningful levers could we use to make smart decisions that cre- ate universal win-win situations for investors, manufacturers, and ultimately, consumers at the other end of the supply chain. Johnson: Our readers are working on their stra- tegic plans for 2023. What's your advice to them right now? DuBravac: As much as the last 24 months have been a challenging environment, the next 24 months will be equally challenging, but for dif- ferent reasons. e probability that we end up in a recession is growing. e Federal Reserve is in a very difficult spot right now, where there is a very strong econ- omy, very high inflation, and very strong motivation to raise interest rates aggressively to lower inflation. e problem is that monetary pol- icy is transmitted into the economy with a pretty big lag. So, as interest rate hikes tend to materialize, we see the full effects six months or so aer they've raised rates. e challenge for the Federal Reserve is to raise rates to combat infla- tion, but they'll only know where they are six months from now. e challenge is that they'll be raising rates into a slowing econ- omy, and that they'll ultimately overshoot and tighten too much too quickly. Normally, if inflation rates weren't this high, they could take time. ey could raise rates slowly and allow those rate hikes to have full transmission into the economy. But they don't have that lux- ury now. Companies are making decisions in an economic environment where it looks like the probability of recession is growing. I say there's probably a 50% chance we're in a reces- sion next year. If you look at any of the CEO surveys, they say the probability is higher. From our own sentiment survey that we pub- lished for June, almost 80% of executives are concerned about a recession in 2023. at cloud hangs over investment, capacity, and other decisions that executives are making right now. at's why the underlying industry that companies are in is becoming so impor- tant. If you are in the right space, you won't feel the economic downturn quite as significantly. e jury is still out as to the extent of any reces- sion, how strong or muted it might be. If we have a shallow recession in 2023 and we move out of that, then I don't think that's too much to worry about. If we're in an environment where we have high inflation rates and low growth rates, that becomes a problematic environment because you've got workers who are wanting higher salaries, but the underlying growth isn't there to support higher salaries. Going into this