- The global economy is now in the midst of a “synchronized slowdown” (IMF), or worse: a “synchronized stagnation”. Those who believe that the manufacturing contraction currently engulfing the world’s major economies won’t sooner or later infect the services industry are in cloud cuckoo land. Yes: physical goods only represent a tiny fraction of economic activity, but sentiments and fears are contagious: the former will inevitably infect the latter. Die-hard bulls claim that a recession won’t occur while consumer spending and employment figures remain decent, but both are lagging, not forward, indicators. To get a proper sense of when the next recession might strike, the “economics of walking around” (being out and about talking to people) is to be preferred to old-fashioned and failing econometric models.
- A few numbers help to put the whole picture into perspective: this year, global growth is slowing in 90% of the world and should not exceed 3% (compared with 3.6% last year): 1.7% in high-income countries (2.3% in 2018) and 3.9% in emerging economies (4.5% in 2018). Significantly, global trade will grow below output: around 1% compared to 3.6% last year, meaning that the world (of trade) is de facto de-globalising. Globally, USD15trillion of bonds now trade with negative yields. Systemically significant countries (Japan) and regions (Europe) have entered a monetary black hole: unable to provide positive returns to risk-free savings while falling short of inflation targets and growth at a time when financial stability is endangered by leverage and the search for yields.
- A growing sense of uncertainty about what is coming next is mainly responsible for this grim situation. It is further entrenched by (1) trade wars being waged on multiple fronts, (2) greater political and geopolitical instability around the world and (3) mounting policy concerns about big macro issues such as the effectiveness of monetary policy or impending regulatory backlashes related to tech and climate change. By unsettling us, all these put a brake on economic activity – uncertainty engenders uneasiness and ambiguity, and as we seek clarity we tend to delay our consumption and investment decisions.
- Civil unrest is erupting around the world. Mass protests driven by different political and economic demands are occurring in multiple countries on all continents (from Chile, one of the richest and most politically stable nations in Latin America to Haiti, Lebanon, Hong Kong and others), but they share two characteristics: (1) they are leaderless and spurred on by social media (reflecting that ours is an era of “quantum politics”); (2) they arise out of a general sense of frustration over inequalities with a ‘last straw’ tiny tax or price increase acting as a trigger. Demands then rapidly balloon to encompass a host of grievances. One insight: in rich countries, social unrest often erupts when a dissonance exists between traditional measures of success (like GDP per capita) and indicators of wellbeing (as captured in particular in the World Happiness Report). Watch out for these disconnects when investing!
- We often forget that tail events drive the world: a few ‘things’ determine the majority of outcomes. Such is the case with water in Asia: bullish forecasts about the inevitable rise of the continent are blindsided by its looming water crisis. Asia is where more than half of the world’s population lives and already has less freshwater per person than any other continent. The lives of hundreds of millions will be negatively impacted by (1) the increase in extreme weather events combined with (2) the accelerating melting of Himalayan glaciers. Rising sea levels and reduced access to freshwater inevitably entail a cascade of risks destined to conflate with each other: impaired food production, increased geopolitical tensions and large-scale migration within and across borders.
- In the wake of Uber and several other disappointing tech IPOs, the WeWork debacle marks the end of the golden age of unfettered tech growth. Its failure to go public and a valuation that bombed from USD47bn to 8bn in a week brings this thought to mind: tech narratives have the power to lure investors, desperate for yield; but the distinction is tenuous between a transformative company and an old traditional business. WeWork subletting office space without much recourse to AI and tech is the latter. Story telling can work wonders until the emperor is left with no clothes.
- The global geopolitical landscape is going through a series of seismic changes. Support for the old international order and the US hegemony that went with it was a matter of preferences, but at least it provided a modicum of predictability and stability. That era of American supremacy is over and the liberal international order has given way to the law of the jungle. As a result, the geopolitical outlook is clouded and laced with anxiety: nation-states have entered the ‘age of the grey zone’, with significant players gaining leverage by using intimidation and coercion in ways that can be defined neither as war nor as peace. China’s current grip on US businesses is proof of that. Business-wise, it suggests that the age of US multinationals is under threat, if not over.
- The end of anonymity and the rise of surveillance go hand in hand. AI can now access all our data and thus supercharge surveillance in countries, in cities, at work and at home (it we are not careful). The blurred zone that exists between passive, decentralized watching and active, centralized surveillance is what will determine the terms of our future social contract and whether we do or don’t live in an Orwellian country.
- The UK forthcoming general election (Dec. 12) won’t solve Brexit, but will put in place BRINO (Brexit In Name Only – an acronym coined by a FT columnist). As the destructive reality of what exiting the EU really entails kicks in, the next British PM (if it is Johnson) will leave the EU but will stay in the single market and the customs union until he finds a more suitable alternative. Since there is none, this means ‘an in-between’ situation (out but not completely) that will persist for years. Like Norway or Switzerland, Britain will then have no choice but to follow EU rules without having a seat at the decision making table.
- Increasingly, reconnecting with nature is perceived as the antidote to today’s ills. Nature is back in fashion and in full swing, fast becoming a compelling, multifaceted marketing and investment theme. It ranges from nature immersions prescribed by doctors to the double-digit growth of the outdoors economy and biophilic design.
