Industrial policies are everywhere. Three recent warnings about global over-indebtedness. Central banks and regulators worry about climate change. Will there be a US soft landing or not? Immigration in rescue of the US economy. The risk of Europe becoming ungovernable. Geopolitical insights and “selective compassion”. AI euphoria. Four canaries in the mine.

  • INDUSTRIAL POLICIES EVERYWHERE. Just when a trade fight is about to erupt between China and the West over green energy (which the former massively subsidises), Beijing announced a new set of policy measures to promote investment in high-tech industries (notably IT, aerospace, and bioengineering). It’s not a given this will drive growth (there is nothing intrinsically productive about tech, as the USSR showed in the 1970s), but the point is that most countries now embrace industrial policies to improve economic, social, and political outcomes. This goes far beyond creating national champions. In the case of the US, for example, the aim is to protect some domestic industries from highly subsidised beggar-thy-neighbour policies of other countries. The bottom line: the state is reasserting its role everywhere. The consequences for investors of more industrial policies are twofold: (1) they’ll push up costs (as an example, gradual de-risking from China could cost Germany 1.2% of GDP and China 2% of GDP); (2) there’ll be more tariffs abroad and subsidies at home.
  • WARNINGS ABOUT OVER-INDEBTEDNESS. Three different authoritative voices just validated the concerns we’ve expressed multiple times about the excessive levels of debt in the world economy. (1) The US Congressional Budget Office warned about the “significant risks” that rising debt poses to the country’s economic outlook – federal debt could rise from a record 109% in 2029 to 166% in 2054. (2) Larry Fink (Blackrock) warned about the “snowballing levels” of US debt accumulation, telling the authorities they shouldn’t take it for granted that investors will buy as much US debt as they did in the past. (3) The French government warned about the fiscal deficit.
  • CENTRAL BANKS AND CLIMATE CHANGE. As the effect of global warming and biodiversity loss get starker and more expensive (last year in the US, 28 “weather events” cost the insurance industry at least $1bn each), central banks and regulators increasingly fear that losses tied to the environment might cascade through the financial system. Financial consequences of extreme weather and environmental degradation won’t happen overnight but will ultimately percolate through in the form of: (1) reduced tax revenues; (2) increased government expenditures; (3) lower credit ratings; and (4) increased cost of borrowing.
  • SOFT-LANDING OR NOT FOR US? Much depends on the US consumer’s insatiable appetite for spending. Recent data points to a deceleration. Since the beginning of the year, retail sales have experienced a sharp pullback (with a strong decline in January followed by a flat February). At the same time, delinquencies on credit cards and auto loans are edging higher. Unsurprisingly, spending among lower and middle-income households is weakening the most, with spending by higher-income households unlikely to close the gap.
  • COULD IMMIGRATION COME TO THE RESCUE OF THE US ECONOMY? Immigration is one thing that might keep US GDP growth going. Far from “stealing jobs”, migrants boost the demand for goods, services, and housing. They also increase the size of the labour force, expanding the productive capacity of the economy, and thus GDP growth and in turn government revenues. In addition, where wage inflation is a mounting concern, migrants put downward pressure on average inflation-adjusted wages by working in lower-paying jobs. The nonpartisan Congressional Budget Office estimates that an increase in immigration (which they put at roughly 5 million people in 2034) will lift GDP growth by an average of 0.2 percentage points from 2024 to 2034, bolstering the US economy by about $2 trillion in 10 y.
  • COULD EUROPE BECOME UNGOVERNABLE? Current forecasts for the European Parliamentary election on 6-9 June point to major gains for the anti-European, far-right parties. If this populist surge happens, it could create an institutional deadlock, making it much harder to implement the European Green Deal and to conduct a coherent European foreign policy vis-à-vis Russia. This said, the European far-right is deeply divided. Therefore, winning votes does not equate to winning power.
  • SOME GEOPOLITICAL INSIGHTS from our Summit of Minds on Snow. We shouldn’t expect Russia’s war in Ukraine and Israel’s war in Gaza to come to an end any time soon. The geopolitical landscape is messy and unstable, with many global and regional powers walking a perilous line between deterrence and destabilisation. We were also warned about “selective compassion” by being reminded that the greatest humanitarian crisis is currently unfolding in Sudan where 18m people face acute food insecurity with 6.5m displaced, often in atrocious conditions. A UN appeal for $2.7bn in humanitarian aid for Sudan has by late March raised just $131m.
  • AI EUPHORIA. The wave of US and European antitrust cases against some of the Magnificent Seven, combined with the ongoing tech war between China and the US, suggests that the wind may be about to turn for the big oligopolistic tech firms. The current stratospheric valuations can only be sustained if one assumes that (1) the “big tech” business model will not be disrupted, and that (2) AI will transform everything. Two big “ifs”. Regarding the latter, AI might eventually change the world, but currently many businesses are going through a period of ‘AI disenchantment’, finding it promising but full of hurdles and hard to scale.
  • CANARIES IN THE MINE. Four ‘random’ observations that can be seen as not-so-weak signals. (1) Last year, the number of rich Americans inquiring with the leading firm that helps gaining residence abroad increased by 504% compared to 2019. (2) After Gucci’s sales plummeted in China (by almost 20% Q-o-Q), Kering lost $8bn in market cap. (3) EVs are now part of the culture war: 71% of Republicans would not buy one, compared with 17% of Democrats. (4) Cocoa prices have gone up 250% Y-o-Y, just settling at $10,000 per ton. The cocoa market has become disorderly, untethered from fundamentals, but the primary culprit behind the increase: climate change.
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