Paradigm shifts create Winners and Losers

Economic growth

SHARE THIS STORY

MY ANNUAL BUDGET OUTLOOK WILL BE PUBLISHED NEXT WEEK
Next week, I will publish my annual Budget Outlook, covering the 2020-2022 period. The aim, as always, will be to challenge conventional wisdom when this seems to be heading in the wrong direction.

Before publishing the new Outlook each year, I always like to review my previous forecast. Past performance may not be a perfect guide to the future, but it is the best we have:

The 2007 Outlook ‘Budgeting for a Downturn‘, and 2008′s ‘Budgeting for Survival’ meant I was one of the few to forecast the 2008 Crisis.  2009′s ‘Budgeting for a New Normal’ was then more positive than the consensus, suggesting “2010 should be a better year, as demand grows in line with a recovery in global GDP“.  Please click here if you would like to download a free copy of all the Budget Outlooks.

LAST YEAR’S OUTLOOK WARNED OF KEY RISKS TO THE ECONOMY AND BUSINESS
My argument last year was that companies should be ‘Budgeting for the end of ‘Business as Usual‘:

A year later, this view is starting to become consensus:

  • Global auto markets are now clearly in decline, down 5% in January-September versus 2018, whilst the authoritative CPB World Trade Monitor showed trade down 0.8% in Q2 after a 0.3% fall in Q1
  • Liquidity is clearly declining in financial markets as China’s slowdown spreads, and US repo markets confirm: Western political debate is ever-more polarised
  • The US$ has been rising due to increased uncertainty, creating currency risk for those who have borrowed in dollars; geopolitical risks are becoming more obvious
  • “Bubble stocks” such as WeWork, Uber and Netflix have seen sharp falls in their valuations, leading at least some investors to worry about “return of capital”
  • The ongoing decline in global chemicals Capacity Utilisation, the best leading indicator for the global economy, suggests recession is close. This will lead to bankruptcies in over-leveraged firms and to major downgrades in the BBB corporate bond market

The rising risks in the US repo market confirm the concerns over the level of debt in global markets.

Developments over the past month suggest New York markets are now systemically short of overnight money, with the Fed’s balance sheet suddenly starting to expand again. It was $3.76tn on 4 Sept, but reached $3.97tn on 16 October, a $210bn rise in just 5 weeks.

It is therefore looking more and more likely that we are at the start of a  global debt crisis.

The last 10 years have proved that stimulus programmes cannot substitute for a lack of babies. They generate debt mountains instead of sustainable demand, and so make the problems worse, not better.

Unfortunately, they also have a political dimension, as they encourage voters to listen to new voices, such as the Populists, who offer seemingly simple solutions to the problems which have been ignored by the elites.

The one redeeming feature of the 2008 Crisis was that global leaders did at least manage to come together to restore financial liquidity.  It is hard to be confident that this would happen again, if a debt crisis does begin.

PREVIOUS POST

Companies ignore the Perennials 55+ generation at their peril

13/10/2019

Nearly a third of the the world’s High Income population are now in the Pe...

Learn more
NEXT POST

Budgeting for paradigm shifts and a debt crisis

27/10/2019

It is now 8 years since John Richardson and I published our 10-year forecast for...

Learn more
More posts
Debt, deflation, demographics and Brexit set to challenge London house prices
17/05/2020

London property websites haven’t used the word “reduced” for many years. But it...

Read
The bill for two decades of doomed stimulus measures is due
03/05/2020

The Financial Times kindly made my letter on the risks now associated with central bank stimulus the...

Read
Local supply chains replace global trade as world starts to “do more with less”
26/04/2020

Something quite dramatic is happening in the global economy.  Of course, Wall Street analysts still...

Read
Financial markets enter their Convulsion phase
19/04/2020

Many companies and investors are still comparing today’s downturn to the 9-month hiccups seen afte...

Read
World risks moving from Denial into Anger as the Paradigm of Loss moves forward
12/04/2020

The head of the IMF has warned again on the likely scale of the economic depression ahead: “Gl...

Read
The world has wasted 3 months – there is little time now left to avoid a Covid-19 catastrophe
05/04/2020

It is now 3 months since China’s state television broadcast the first news of the Wuhan virus,...

Read
A new recession era to emerge
22/03/2020

Contingency planning has become mission-critical. The longer the coronavirus pandemic continues, the...

Read
Chain’s smartphone and auto sales tumble as coronavirus hits demand
08/03/2020

China is the world’s largest market for smartphones and autos – responsible for c30% of ...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more