Short-term economic outlook looking better than expected. Public finances looking unsustainable. What would a Trump victory look like? Industrial policies changing how business is done. Russia’s waiting game in Ukraine. Galloping global heating heralds the early stage of a climate emergency. Just green isn’t enough, green transition must be fair too. Is it India’s moment?

  • SHORT-TERM ECONOMIC OUTLOOK: BETTER THAN EXPECTED. Compared to last month, the short-term global economic outlook has improved. The G20 thinks there is a reasonable chance of a soft landing as inflation continues to recede. For its part, the IMF has upgraded its forecast for global GDP growth this year to 3.1%, based on better-than-expected US economic performance and fiscal support in China. Geopolitical turmoil and geo-economic tensions remain key concerns, and too much confidence may be being placed in the disinflation trend.
  • MEDIUM AND LONG-TERM ECONOMIC OUTLOOK: UNSUSTAINABLE PUBLIC FINANCES. As government debt levels and debt to GDP ratios keep growing across much of the world, and notably in the West, the risk of a fiscal accident is on the rise. Last month in the US, the Congressional Budget Office warned that US government finances are on an unsustainable path. The situation is roughly similar in Europe and in the UK. How to reign in public spending while maintaining health and social security programmes and increasing defence spending looks like an impossible political conundrum. A major crisis is all but inevitable. Watch out for any sign that could provoke an accident: for example (1) a bond auction with weak demand, (2) a large increase in the term premium, or a (3) sovereign downgrade.
  • TRUMP’S PREDICTABLE UNPREDICTABILITY. At the current juncture, a second Trump term is the base case. What would be the economic and geopolitical fall-out of a Trump victory? Domestically, a lax fiscal policy with a politicization of the Fed, resulting in a weaker $ and possibly in a brutal sell-off in US Treasuries. Taking on the “deep state” would endanger institutions and create mammoth uncertainty. Foreigners should expect more tariffs and trade fights, more US retrenchment and de-globalisation, and more threats to their businesses and other entities. And globally? His most recent outburst about “encouraging” Russia to attack NATO countries that do not meet their defence-spending target of 2% of GDP calls into question US commitment to its allies (should he be elected). It raises the issue of a potential two-tiered NATO alliancein which article 5 would only apply to countries that meet the 2% target.
  • INDUSTRIAL POLICIES ARE BACK, adding fuel to the de-globalization fire. Industrial policies tend not to get a good press, yet they are expanding all over the world, from China’s carbon-neutrality subsidies to Biden’s Inflation Reduction Act (also destined to accelerate the green transition). As many rail against unfettered globalisation, industrial policies offer the chance (when done well) to provide public goods and offset negative externalities (like the loss of local jobs or the destruction of nature). With security now being recognised as a fundamental public good, investors and business leaders must prepare for security considerations (economic, defence, energy, food, supply chains, etc.) to reshape the world economy and the way business will be done.
  • RUSSIA’S WAR IN UKRAINE. On 24 February, the second anniversary of Russia’s full-scale invasion of his country, Ukrainian writer Andrei Kurkov wrote: “The time has come for realism, an understanding that this war will last for a long time, that we must learn to live with it.” “American political dysfunction” (in the words of a former US Secretary of Defence) prevents the supply of weapons that Ukraine so critically needs at a time when Putin has enough money to keep going for at least another year. As a result, Russia now has the upper hand. So far, the war has had no lasting impact on the financial markets, as shown by the fall in commodity prices and a subdued VIX index. Yet, the slow-moving, long-term, economic consequences of the conflict remain far-reaching and seismic.
  • GLOBAL HEATING IS ACCELERATING. With key temperature thresholds being repeatedly breached, there is a growing consensus within the scientific community that global heating is accelerating faster than expected. This is a stark omen and the sign that we are now in the early stage of a climate emergency. In the short-term, this will lead to (1) spiralling economic costs (such as the cost of insuring against climate disasters) and in the longer-term to (2) drastic changes in weather patterns (such as a rapid drop in temperatures across Europe, with the possibility in 10-50 years of London becoming as cold as Labrador). Despite the growing politicization of climate action, investors are engaging ever more in the frantic search for solutions across adaptation, mitigation, and resilience. Luckily, innovation is relentless, as proven by our good4nature alliance. For those still claiming this is not as serious as it seems, we have the following proposition: invest your pension in ski industry stocks to prove us wrong.
  • GREEN TRANSITION AND ‘JUST’ TRANSITION. Currently, most financing decisions for environmental action do not explicitly consider the social trade-offs and risks involved. Yet, the farmers’ continuing protests in Europe are proof that green policies cannot succeed unless they are accompanied by ‘fair’ and/or positive societal outcomes. Given the growing appeal of populist policies, it is essential to delineate the contours of what fairness means and entails. The financial markets underestimate the slow-moving risk of political and social turmoil.
  • IS IT INDIA’S MOMENT? Global investors are pulling significant capital away from China and redirecting it to India, now perceived as the prime investment destination of the next ten years or so. On the back of strong corporate earnings and a fast-growing domestic retail investor base, foreign investment is contributing to India’s stock market growing capitalization. At USD4.33tr., it is now the 4th largest equity market in the world. Will the world’s most populous country succeed in positioning itself as an alternative to China? Will its consumption-driven and fast-growing economy attract enough capital from global investors? Expert opinions vary widely. Some see India bound for financial glory and economic success. Others expect it to get stuck in a trickle-down morass. We’ll delve into the opinions of both camps at our September Summit of Minds.
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