The unsinkable US consumer is keeping its economy afloat. For rich economies, oil price inflation should be a manageable headwind. Long green – short brown or not, that is the question. Developing new technologies, including AI, is thirsty work. A Taskforce on Climate-related Financial Disclosure (TCFD) is on the way. Much in this “unhinged world” hinges on the outcome of the 2024 US election. The power of capital over labour is being questioned ditto for corporate concentration.
- THE UNSINKABLE US CONSUMER? It is she/he who explains the remarkable outperformance of the US economy, and the absence (as yet) of a recession. But the US post-pandemic excess savings will eventually run out (they’d dropped by $1.9tr at the end of Q1 after an increase of 2.1tr as a result of the pandemic). When this happens, the US economy will face the same headwinds as everyone else, and slower growth will ensue.
- OIL, INFLATION AND THE GLOBAL ECONOMY. Much is being made about the recent spike in oil prices triggered by a Saudi-Russian alliance, fuelling concerns about renewed inflation. This will cause some limited pain in high-income countries. Like a tax increase, oil price inflation will impact businesses and consumers’ real income, but only at the margin. Because: (1) the most developed economies are much less oil-dependent, or ‘oil-intensive’, than they were in the past, and (2) central banks will not tighten monetary policy in response (they only focus on core inflation, which excludes food and energy). Unless prices reach ‘crazy’ levels (like $150 per barrel), the oil price increase will remain a manageable headwind.
- GREEN OR BROWN – THE TRADE OF THE CENTURY. To mitigate the risk of an impending climate catastrophe, the IEA asserts that fossil fuel demand must fall by 25% by 2030 and by 80% by 2050, with clean energy expanding simultaneously to compensate for the oil & gas shortfall. A tall order: if the decline in fossil fuels was to precede the expansion of green energy, high prices and economic chaos would ensue. To prevent this, global investment in clean energy must increase to USD4.5tr per annum in the next five years compared to this year’s USD1.8tr. A massive endeavour, dogged by the ferocious lobbying power of petrostates and the oil & gas industry to greenlight fossil fuel expansion through abatement (carbon capture technology). COP28 in December will give us a better sense of the balance of power between the two camps. The ascendency of ‘phasing-out’ (green) over ‘phasing-down’ (brown) would provide much support for the ‘long green / short brown’ trade of the century.
- AI AND WATER SUSTAINABILITY. While AI can do a lot for water management, it also stresses water supplies. (As an example, training GPT-3 in Microsoft’s US data centres directly consumes around 700,000 litres of clean freshwater – enough for producing 370 BMW cars -, an amount that would triple if it were done in Microsoft’s Asian data centres). Supply stresses caused by water shortages beset the semiconductors industry to such an extent that TMSC (the world’s largest semiconductor company) now requires its suppliers to address drought risks. Mitigating water footprint is below dealing with carbon footprint on the business agenda, but it will catch up! Water recycling and net zero water targets will soon be at the forefront of the tech industry, with the importance of water management and infrastructure modernisation added as secular investment themes.
- TNFD ON THE WAY. Much like the existing Taskforce on Climate-related Financial Disclosure (TCFD), the Taskforce on Nature-related Financial Disclosure (TNFD) will eventually force companies to better assess risks related to nature, like their impact on biodiversity and land and water use. Disclosure is not mandatory yet, but investors and regulators know it’s coming sooner than many business executives realise. And there are significant nature-related opportunities, as our good4nature alliance attests.
- AN “UNHINGED WORLD”. This expression comes from the UN Secretary General at the recent UN annual meeting in NYC. For three key reasons it was marked by a deep sense of pessimism: (1) The stasis of the UN Security Council – out of the 5 permanent countries that compose it, only one leader was there (Biden); (2) It made it clear that no one is in charge. Urgent action is needed on many fronts – ranging from the climate to food security and AI regulation – but global cooperation is wanting. (3) So far only 12% of the SDG targets have been met(a set of 17 goals adopted in 2015 for 2030).
- … IN WHICH MUCH HINGES ON THE US ELECTION. Our recent Summit of Minds made it clear that, to a considerable degree, a deterioration of the global economic, environmental, geopolitical, and societal outlook hinges on the possibility of a second Trump administration. What it would look like is anyone’s guess, that said ,the following would be likely: (1) Considerably less support for Ukraine; (2) International treaties of various sorts dislocated or ‘defenestrated’ (those pertaining to the environment, security: NATO and other security guarantees, trade: WTO, etc.). Confidence in the US would plummet.
- LABOUR RESURGENCE. The US “summer of strikes” fuelled by organized labour combativeness is paying off, suggesting that decades long subservience of labour to capital is about to change (possibly for good as global ageing and looming labour scarcity are part of the story). In a context where workers have leverage and benefit from strong public support (67% of Americans, including the President), they might obtain a dramatic improvement in wages and working conditions (as the deals with writers and auto workers might suggest). The balance of power between capital and labour looks to be shifting and could result in the increasing share of labour over capital in the distribution of income. A potentially net positive for fairness and social stability.
- CORPORATE CONCENTRATION UNDER THREAT. The landmark antitrust case filed by the US Federal Trade Commission and 17 states against Amazon – accusing it of stifling competition – is the first tangible blow against the growing concentration of corporate power that besets America (and many other countries). Amazon will challenge the lawsuit, but it remains a major, symbolic, tip of the ‘corporate concentration’ iceberg. In the US, corporate concentration went up by 48% between 1996 and 2018, raising concerns and prompting calls for breakups in notably the tech, pharma, and media industries. Are these about to become louder and more effective? Too early to tell, but the direction of travel is clear.
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