Recovery is in full swing In much of the world, and particularly in high-income countries, and is progressing at such a remarkable speed that yearly comparisons are head spinning. This sudden release of pent-up demand has been made possible by the phenomenal amounts of fiscal and monetary stimulus, but these are not indefinite. Once they are withdrawn, bankruptcies and unemployment will inevitably rise. This is currently the greatest concern of policymakers.
However, for the moment, demand for consumption and investment is surging, transforming last year’s demand shortage into this year’s supply shortage. These difficulties on the supply side will not dissipate overnight and might even get worse before they improve. Today’s just-in time supply chains are composed of so many intricate layers that a problem with one immediately cascades onto and conflates with others. Take shipping (90% of the world’s trade in physical goods): it is at the moment hard to secure an order because of the labour shortage caused by COVID (many crews are Indian). Such examples abound. It will take months, if not a year or two, to sort out bottlenecks and resolve the issue of supply shortages.
Hence the concerns about inflation, crystallised by US CPI at 4.2% and core inflation at 3.1% in April (Y-o-Y). This shouldn’t come as a surprise: from a ‘standing start’ the US economy is roaring ahead, forcing employers to recruit large numbers of workers at speed and suppliers to increase production as fast as they can. In a way, the bad news stems from good news; the inflation stems from the surging recovery. Will inflation be stickier than initially assumed? This depends on two main things: (1) whether geopolitics interfering with global supply conditions will endure (probably yes); (2) for how long monetary and fiscal policy will continue being so expansive and reinforcing each other. As aggregate demand expands, an inflation overshoot in the next few months is probably a given. But then, deflationary forces like (1) demographics, (2) tech innovation and (3) excessive indebtedness (that suppresses growth) will prevail.
Mass surveillance and privacy
More than half of the countries rated Free or Not Free in 2009 by Freedom House (a think-tank) suffered a net decline in political rights and civil liberties in the ensuing 14 years. Although data is not yet available, this declining trend has sharply accelerated during the pandemic. A combo of rising illiberalism (or plain autocracy) and rising tech-enabled mass surveillance is gaining ground in a multitude of countries around the world. Ethnic minorities and immigrants bear the brunt of the trend, but everybody is affected – so much so that Apple’s CEO just declared that privacy will be one of the defining issues of the 21st century. This will soon become a major headache (not just a hindrance) for companies and investors who operate globally.
Even though cryptocurrencies are at the moment all the rage, in the end, it is ‘govcoins’ – central banks / government digital currencies – that will prevail. 50+ experiments are currently going on, ranging from advanced ones (China or the Bahamas) to those in the making (the EU or the US).
The recent landmark court ruling ordering Shell to accelerate its decarbonisation plan and the remarkable proxy battle that just pitted Engine n.1 against ExxonMobil (in which the small activist fund holds a mere 0.02%) is further proof that the writing is on the wall for all large greenhouse emitters. The wider lesson: any company in any industry unprepared for the accelerating radical energy transition is bound to be in trouble.
Download the full report : The Inside Track June 2021