In 2022 a mix of Omicron and inflation will slow global growth.  US global dominance continues to come under pressure, while at home a civil conflict scenario is becoming more likely. Stay-at-home working is here to stay. The scarcity of good jobs will be high up on policy makers’ priority lists. NFTs were 2021’s speed-of-change poster boy. All things crypto also continue apace.
  • Even though forecasting is a perilous and often futile exercise, here we go! In 2022: (1) inflation will get better but growth will get worse, (2) social inequalities will continue to rise, (3) so will geopolitical turmoil and illiberalism, (4) the climate emergency will continue to intensify, (5) tech exponential progress will provide many solutions to the problems that beset us but will also be used for nefarious purposes (notably in AI and synthetic biology). We review some of these below. The only certainty: the velocity of change will continue to surprise us. Getting the direction of the trends is easy – being correct about their timing is much harder!
  • In 2022, the combination of Omicron and inflation will make global growth lower than expected. (1) The new variant – less virulent but more contagious – suppresses demand in the service sector and exacerbates supply chain disruptions. (2) Meanwhile, inflation erodes households’ disposable income and accentuates inequalities (inflation inequality: it hits the poorest the hardest). Rising inflation will force central banks to phase out unconventional monetary policies and raise rates earlier and faster than expected, which will in turn tame the economic upswing. Global growth will slow from 5.6% in 2021 to around 4% this year (OECD forecast: 4.5%).
  • We underestimated inflation in 2021 and don’t want to double down by overestimating it in 2022. How long will this episode of high inflation (the highest in 40 years in the US with CPI at 6.8% Y-o-Y in Nov.) endure? And how wide will it spread through the global economy? As the supply side of the economy progressively adjusts to the current disruptions, and as central banks start acting, we prudently believe that inflation will subside in 2022. The bond markets are still pricing in inflation at around 2% over the next decade.
  • BUT sudden bouts of energy inflation will occur, caused by the indispensable energy transition. Oil & gas still represent 80% of the energy mix, meaning that the transition from brown to green won’t happen overnight. When the tectonic plates of clean energy and fossil fuels clash, it will be a messy affair, provoking violent and sudden ‘fractures’ like the recent spike in energy prices and acute geopolitical tensions. Far from easing tensions over energy resources the transition to clean energy is creating new forms of geopolitical competition and confrontation.
  • This phenomenon is epitomized by the current tensions between the West and Russia. More generally, US supremacy and its resolve are being tested on many fronts: with Russia over Ukraine, with China over Taiwan and with Iran over nuclear weapons. The weaker the US seems, the greater is the incentive for its opponents to test its resolve, and the greater the propensity for global chaos and turmoil.
  • An increasing number of the MB’s American friends are warning us about an impending US civil war. Many concur with the former chairman of the US National Intelligence Council when he recently stated that “the only question is whether it (the civil war) will be fought with lawsuits and secessions or with AK-15s.” Civil conflict in the US could take many different forms (including that of being ‘civil’), but it’s no longer an outlandish scenario for investors.
  • Stay-at-home hybrid working is here to stay. For those with a profession allowing them to do so, 2-3 days a week home working is becoming the norm. The consequences of this radical shift will be manifold. Three stand out: (1) Cities will continue to thrive, but high-end property prices in city-centres will correct by 10-20% as well-paid professionals migrate to more spacious homes in appealing locations from where they can commute twice a week. (2) Conversely, property prices in rural areas will increase, with the presence of remote workers contributing to the reduction of regional inequalities. (3) Productivity will increase as employees are happier and waste less time and energy travelling – current research supports this assertion.
  • The availability of “good jobs” is a rising concern. Their scarcity in many labour markets is held responsible for political polarization, regional inequalities, and disenfranchisement, even threatening the social fabric that underpins stability in some countries. As a result, policymakers are paying more attention to it and conscious that redistribution, while essential, can only go so far, they are ‘pushing’ firms to provide more good jobs – i.e.: jobs that offer a decent living wage, good benefits, autonomy, security, and a career ladder. What does this mean for investors and business execs? Good jobs cannot be generated by fiat, but government will strongly incentivize their creation through a host of regulatory measures defined in collaboration with the industry + innovation policies. Ultimately, companies unable to offer meaningful jobs will be penalised by the markets (the S in ESG).
  • In 2021, many ‘candidates’ characterized the aforementioned velocity of change and the speed with which it can surprise us. They ranged from inflation and the energy crisis to Xi’s tech crackdown and the succession of Covid waves. Our favourite example: NFTs (Non-Fungible Tokens). A year ago, the market for NFTs barely existed. Today, it’s worth USD41bn, not far from the level of global art market estimated at USD50bn.
  • More broadly, crypto and DeFi (Decentralized Finance) are progressing at such a furious pace that they’ve become a USD2.4 tr market now beginning to compete with traditional finance. As the crypto market matures and develops, it will create new forms of systemic risk necessitating the intervention of regulators. In the coming months, watch what the Financial Stability Board will do and the framework it puts into place. It may well be that global cooperation fails and that governments raise technological fences that fragment the global financial system.
  • For an in-depth proprietary analysis of any of the bullet points and what they mean for you – please contact us. We provide tailor-made, independent research, with insights and actionable ideas based on a rich and diverse network. Hence, we avoid (1) groupthink and (2) off-the-shelf solutions. Details HERE
  • We are thrilled to share with you that The Great Narrative – For a Better Future, co-written with Klaus Schwab, was published today.