Investing in R&D in 2023 Makes More Sense, in a Different Way. 2022 R&D Outlook
Mentioning R&D, or research and development, we as RVmagnetics refer
to the activities that businesses, governments, and other organizations engage
in to develop new products, processes, or services. Fundamentally, being an
R&D organization ourselves, we are vastly affected by the factors
influencing investments in R&D.
Surely the last few years have not been the calmest for this line of work, so
we found the importance in not only evaluating 2022 global economic
effects on the R&D industries and 2023 R&D outlook but also
making our observations public through this blog, so as to make it helpful for
the relevant reader.
The main effects we are going to address are inflation, war, and pandemics.
These effects themselves depend on a variety of factors, including:
governments and international economic unions take and
the specific industries and sectors that are
the strategies that organizations can adopt to respond
2022 in an R&D Nutshell
Inflation is the sustained increase in the general price level of goods and
services in an economy. It can naturally have a number of effects on R&D. Inflation can
reduce the purchasing power of organizations, making it more difficult for them
to invest in R&D activities. It can also make it more expensive for
organizations to purchase the equipment, materials, and other resources needed
for R&D. Additionally, inflation can reduce the value of any returns that
organizations receive from their R&D investments, which can make it less
attractive for them to engage in R&D. 2022, with the legacy from 2020–2021 – showed the
aforementioned in unfortunate, practical ways, and different economies around
the world had different reactions to it. As the US dollar is the main global
reserve currency – let’s see their reaction to the R&D investments in
this regard first:
As addressed through the US Department of Energy (DOE) the
Biden-Harris Administration announced $1.5 billion (Biden’s Inflation
Reduction Act). The funding is furnished to improve scientific
facilities, update infrastructure, and address neglected maintenance projects at
national laboratories managed by the DOE's Office of Science. These
laboratories are centers of innovation in the region, including clean energy
technology that creates well-paying jobs and lowers energy costs for households.
This substantial support will assist in realizing the Biden-Harris
Administration's goal to drive research and innovation that addresses the
country's biggest challenges, as well as help achieve the
President's ambitious climate objectives.
The US “Inflation Reduction Act” will allocate
The development of advanced research facilities for scientific
Initiatives in the field of basic energy sciences.
The construction and procurement of key equipment for high energy physics
The construction and procurement of key equipment for nuclear physics
The construction of facilities for isotope research and development.
The improvement of infrastructure for science laboratories.
The European Union plays a significant role in global research and innovation
(R&I) activities, representing about one/fifth of worldwide
R&I efforts, despite having a population that represents less than 7 % of
the world's total.
Current Geopolitical and Economical order of the world has had its effects on
the European Union too – Inflation in Europe may have an average rate
of 10 %, however, its impact varies across different industries and
sectors. Therefore, it's crucial for policies aimed at mitigating its
effects to take these distinctions into account. This is especially important
for firms that heavily invest in innovation, such as small and medium-sized
enterprises (SMEs) operating in cutting-edge technologies and in high-risk and
The main program for funding R&D in the EU is Horizon Europe, which is
the current program that runs from 2021 to 2027. The program has a
budget of €95.5 billion and is intended to support R&D in a wide range of
areas, such as health, energy, digital, industry, and transport, with the goal
of driving innovation and economic growth within the EU.
Another funding program for R&D in 2021, for reference, was the European Research Council (ERC). This program funds individual
researchers and their teams to pursue frontier research across all scientific
The EU Commission also supported R&D in the field of innovation, through
the Innovative Medicine Initiative (IMI) which is a public-private
partnership between the EU and the European pharmaceutical industry. The program
co-funds collaborative research projects in the field of medicines.
In addition to these programs, the EU also had various initiatives and
actions that focused on specific areas such as encouraging sustainable
development and combating climate change, supporting SMEs, and strengthening the
digital single market.
The EU Commission has traditionally been dedicated to investing in research
and development to drive economic growth and innovation. The funding programs
such as Horizon Europe and the ERC, along with other initiatives and actions
will continue to support the R&D and innovation within the EU.
The purpose of the current framework program (Horizon Europe) is to
re-establish the EU's technological superiority (also to support a central
industrial policy of course). However, inflation poses a significant threat
here, as well as funding for projects, is distributed through competitive
processes based on merit. In other words, a grant is provided to the winning
projects to cover a percentage of the total cost, which means the project costs
must be determined well before the execution.
Sudden increases in the cost of materials or other inputs, as seen
currently, can severely impact the feasibility or progress of the project,
something many researchers and SMEs are now confronting.
This is an issue yet to be addressed by the EU commission. As Lina Gálvez
Muñoz showcased in her recent Viewpoint – the
Commission's implication to the aforementioned cost-adjustment in further
Horizon projects is similar to the approach for the projects applied for in
2017 and awarded in 2018. This implies that later applicants should have
predicted the COVID-19 pandemic, shifts in global supply chains, concentration
of business processes leading to price rises, and war in Ukraine affecting raw
However, neither the Commission nor the European Central Bank
forecasted an inflation rate of 10 % for 2022. Why should small and
medium-sized enterprises and innovative entities be expected to predict major
War can have a significant and direct impact on research and development
activities. It can disrupt the supply chains, damage the infrastructure, and
eliminate R&D facilities and equipment. Divert attention and resources away
from R&D and make it challenging to plan and invest in long-term projects
due to the uncertainty and instability created by war.
The ongoing geopolitical situation has created this exact uncertainty
surrounding global security. The European Commission's recent Communication Towards a green, digital and resilient
economy: our European Growth Model reaffirms the commitment to advancing the
EU's sustainable growth agenda through international partnerships. The
deteriorating relationship between Ukraine and Russia, culminating in the
invasion of Ukraine, has exposed significant vulnerabilities and highlights the
need for accelerating the EU's economic transformation. The unexpected factor
of the Russian invasion of Ukraine is set to have a far-reaching impact on
global geopolitical relations, requiring a reduction of industrial dependencies
in strategic sectors through economic restructuring, which will likely affect
innovation. At the same time, the war will have a negative effect on
Ukraine's thriving tech ecosystem, exacerbate reshoring trends, and exacerbate
the global chip shortage.
The International Monetary Fund (IMF) attributes the economic
downturn primarily to the Russia-Ukraine war, with its costs spreading through
higher food and energy prices and disruptions in global trade. The IMF predicts
that Ukraine's economy will contract by 35 % in 2022, and even if the war were
to end soon, it will severely impede Ukraine's economic activity for many years
to come. Similarly, the IMF report forecasts Russia's economy to shrink by
8.5 % in 2022 and 2.3 % in 2023, due primarily to reductions in energy
exports to Western Europe and trade and financial sanctions by Western
countries, along with the withdrawal of foreign businesses from various Russian
industries. Other European economies are also shrinking due to the
With reduced economic growth, R&D investments are also expected to
shrink, although not as severely (except in the aerospace and defense
industries. It had also been stated that companies such as Maryland and
Lockheed-Martin had discussions about increasing the production of weapons for
Ukraine (the discussions had allegedly been held with executives of the US
Threats to public health…
…such as the global pandemic, have also had a significant impact on
R&D. The economic downturn and disruptions caused by the pandemic have made
it difficult for organizations to invest in R&D. Many organizations have had
to reduce their R&D budgets or delay R&D projects in order to respond to
the immediate challenges posed by the pandemic. At the same time, the pandemic
has also led to increased demand for certain types of R&D, such as the
development of vaccines and treatments for COVID-19. In fact, the US National
Bureau of Economic Research published a paper on December 21 called Stem Employment Resiliency During
Recessions: Evidence From The Covid-19 Pandemicstating the
increased demand of Science,Technology, Engineering and Mathematics (STEM)
workers over the non-STEM workers during the pandemic.
It's great to see that R&D funding saw a rebound in 2022, with a 7.3 %
increase in federal funding and more companies reporting an increase in spending
compared to the previous year. This indicates that the impact of the
COVID-19 pandemic on R&D investment was less severe in 2022. In addition,
data from the National Institutes of Health shows that the number of
R&D grants awarded increased by 8 % compared to the previous
year, which suggests a renewed focus on supporting scientific research
and development. Overall, the data shows that 2022 was a stronger year for
R&D compared to 2021.
The COVID-19 pandemic has highlighted the importance of strengthening
European leadership in key technological areas and the appropriately furnished
investment strategies in Research, Development, and Innovation.
The acceleration of digitalization and supply chain disruptions have brought
attention to the need for EU technological and data sovereignty. To maintain and
strengthen the EU's technological leadership, it is essential to increase
R&D expenditure for innovative solutions, improve access to materials along
strategic value chains, and create a more efficient regulatory framework for
advanced technologies. Analyzing global technological specialization patterns is
another, not any less crucial cornerstone to identify critical emerging areas,
assess the EU's global competitiveness, and guide EU policy actions
To end the section on a positive note, however, it is worth
mentioning that green transition seems to be happening, and
technology is playing a key role here, which would be impossible without the
improved R&D initiatives by companies, governments and institutions over the
úast years – who kept on their R&D and R&I investments even when
times are tight. The notable positives:
two-thirds of new cars sold in Norway in 2021 were electric,
according to the International Energy Agency (IEA), over half of the global
increase in electricity supply in 2021 came from renewables.
the IEA predicts that 95 % of new power capacity in the next five years
will be from renewable sources.
breakthroughs in storage and innovations in solar and green hydrogen
technologies are enabling more sustainable production and consumption.(India is
a strong example, reaching its 2030 target for non-fossil fuel electricity
generation nine years ahead of schedule and with new goals to quintuple
renewables capacity by 2030).
Stepping into 2023: What Prospects Does R&D Have so far?
Even though the above-mentioned 3 main global issues are interconnected and
affect the R&D within different countries, industries and sectors
altogether, there are other global challenges that tilt the attention from
relevant R&D investments in 2022, and already raise concern looking through
2023. One of these concerns is the rising cost of energy which has its
effects for universities and research labs throughout the EU, as
energy-intensive facilities, such as particle accelerators and supercomputing
centers, feel the pinch. Many research organizations are struggling to find ways
to cover these increasing and unpredictable energy expenses without sacrificing
funding for research and education.
Additional risks are posed to the Initiatives against Global
Warming: especially the unfortunate event of the Russian invasion of
Ukraine poses a significant risk to the progress towards global emission
reduction goals. Despite the International Energy Agency's assessment that
achieving net zero emissions by 2050 is not possible with any new fossil fuel
developments, this political situation is expected to have an adverse effect on
Expectations are modest from 2023, so how should the R&D
stakeholders act? Simply – investments need to be careful,
The ongoing war in Ukraine and resulting inflationary pressures posed a
significant risk to the R&D industry going into 2023. The conflict has
disrupted supply chains and disrupted the flow of goods and services, which
could impact the ability of businesses and research institutions to continue
their R&D efforts.
In terms of the outlook for R&D in 2023, it is difficult to predict with
certainty how inflation, war, and COVID-19 will affect R&D this year. We
only have very limited information, and a rather unprecedented global modern
state of the world, full of events that will continue to evolve and unfold, and
their impact on R&D will depend on a number of factors, including the
actions that organizations take to respond to them. One thing is clear R&D
will continue to be affected by these events in 2023.
And what could we mean by fast R&D? It is no secret that R&D is not
cheap, and it is also not a secret that when large companies pay especially
large sums of money – there are ways to minimize the financial impact. In
this regard, we as RVmagnetics can provide a relevant Good Case Practice
(GCP) – of dividing the payment into multiple iterations and
negotiating the outsourced R&D payments once the service is finally
This helped us to generate deals with relevant conditions even
through the recession, while it also helped our partners with lighter payment
conditions – to be able to keep their R&D efforts afloat.
To have a remote expectation we can go through potential outlooks or
precedents set forth by different relevant organizations, sources, analytical
bodies, Government and Unions funding and investment plans.
Some of the main economical forecasts towards 2023 according to
Global economy projected to grow only at 1.6 % in 2023,
hindered by financial conditions, COVID in China, and Europe's gas
Global Economy not at immediate risk of recession, however US recession is
by end of 2023.
S&P 500 expected to evaluate the lows in 2023 again, but potential
asset recovery by year-end may be possible.
In the US, similar to the 2022, the Biden-Harris
Administration has included significant investment in R&D as a priority in
the President's 2023 Budget. The budget allots $204.9 billion for
Federal R&D, a 28 % increase from the 2021 enacted level. This
reflects the Administration's focus on long-term investments to
tackle societal challenges through a science-first approach.
The budget also includes a five-year, $81.7 billion allocation at the
Department of Health and Human Services for pandemic preparedness, including
significant investments in R&D, as well as $16.9 billion in discretionary
funding for climate innovation. Additionally, the Administration is committed to
expanding STEM education and increasing participation and capacity at
underserved institutions, with $343 million allocated at the National Science
Foundation and $260 million at the Department of Energy. R&D investments
will also prioritize programs that advance equity for all, with $400 million
allocated at the National Institutes of Health for health disparities
EU. According to projections in the World Economic Outlook,
Europe's advanced economies will grow by just 0.6 % in 2023, while emerging
economies (excluding Turkey and conflict countries Belarus, Russia, and Ukraine)
will expand by 1.7 %. This is a decrease of 0.7 % and 1.1 %, respectively,
compared to the July projections of 2022. More than half of the countries in
the euro area are forecasted to experience technical recessions, with a 1.5 %
average output decline from the peak. Croatia, Poland, and Romania will also
experience technical recessions, with an average peak output decline of over
The IMF estimates that Europe's output and income will be nearly
half a trillion euros lower than pre-war forecasts due to the
continent's severe economic losses from the war. Inflation is also
projected to decline next year but remain significantly above central bank
objectives, at around 6 % and 12 % respectively in advanced and emerging
According to scenarios, a complete shutoff of remaining Russian gas flows to
Europe, along with a cold winter, could lead to shortages, rationing, and a loss
of up to 3 % in GDP for some central and eastern european economies.
Additionally, it could cause a further increase in inflation across the
continent. Even without new energy supply disruptions, inflation is expected to
remain high for longer, driven primarily by high energy and food commodity
prices, particularly in the Western Balkan countries. While these prices are
expected to remain elevated for some time, there is hope that they will stop
increasing and lead to a decline in inflation throughout 2023.
To address the aforementioned predictions and concerns, the EU has approved
the major Horizon Europe work program for 2023–2024, allocating around
€13.5 billion to support European researchers and innovators in tackling
environmental, energy, digital, and geopolitical challenges in the first week of
December 2022. This funding, which forms part of the larger €95.5 billion EU
research and innovation program, Horizon Europe, aims to aid the EU in achieving
its climate goals, enhancing energy security, and fostering the development of
core digital technologies. Additionally, it will target actions to aid Ukraine,
boost economic resilience, and aid in a sustainable recovery from the
COVID-19 pandemic, all while striving for a stronger European research and
innovation ecosystem through wider participation, greater mobility, and funding
for top-notch research infrastructures.
Surfacing cost inefficiencies and identifying cost optimization
opportunities using digital tools.
Collaborative CFOs and CIOs are aligned on the financial
impact of technology and understand financial management needs, specifically the RoI on R&D
activities. 62 % of CFOs from Gartner’s research agreed that CIOs
understand how technology impacts corporate finances.
A Gartner research also showcases the Planned Increase in Technology
Investment in 2023, where the following % of R&D leaders planned to
increase their investments in the following areas of tech in 2023:
Data Analytics – 64 %
Prototyping and Testing – 58 %
Automation – 57 %
Data Sensing & Data Collection – 49 %
Security Technologies – 35 %
Power Technologies – 17 %
We can now conclude, as an R&D outsourced, boutique company,
producing our own custom-designed Measurement and Sensing solutions – the
above picture of the R&D leaders’ expectations is not a surprise
This is because RVmagnetics not only has survived through the
recessions of past years but we have also grown in sales, talent, and
technological adversity – already being in closer cooperation with some
of the world’s best firms in 2022, the kind of firms that realize in their
reach experience, the utmost importance of innovation, research &
development, especially during recessions, and especially looking
With a B2B sales & marketing background in INGO & Foreign Investments in government sectors, Tigran is now responsible for extensive industry research in RVmagnetics focused on marketing the company both in R&D and Business spaces. Tigran is up to date with trends in deep tech, sensors, and innovative startups in need of niche growth. He shares the knowledge with RVmagnetics communities via blogs, publications, and news releases, while also using his experience to Manage RVmagnetics' Key Partners' accounts.