These paradigm shifts are coming at the same time as the loss of the peace and demographic dividends. They are taking our world in a new direction. The likely Winners will be those companies and investors who focus on becoming demand-led.
Chemicals and the Economy
The good news for consumers is that the move to renewables is already set to save European consumers €100bn in 2021-23. The technologies needed in terms of wind, water, solar and storage can successfully deliver the cheaper and more reliable energy supply needed to support the global economy.
As the head of Germany’s Employers’ Associations warned last month: “We are facing the biggest crisis the post-war Federal Republic has ever had. We have to be honest and say: First of all, we will lose the prosperity that we have had for years”.
The US is moving into recession as the Atlanta Fed chart confirms. Chemicals have been warning of this for some time. But policymakers and commentators remain in Denial about the economy. They prefer to focus on their computer models, and ignore the real world outside their window.
Consumer sentiment is already at all-time lows. Rising energy, transport and food prices will likely soon push inflation above 10%, and interest/mortgage rates to 5%+, adding to the risk of a major and long-lasting downturn.
Energy and financial markets are exacerbating the risks ahead. Oil prices at current levels – as the chart confirms, they now account for more than 3% of global GDP – have historically led to recession as the chart shows. The reason is that consumers have to cut back on their discretionary spending, which drives economic growth, in order to heat their homes and travel to work and school. Today’s high levels of natural gas prices add to this risk.
This is why we are facing a K-shaped recession. Companies and investors have a difficult time ahead. They not only have to navigate a potentially major downturn. But they also have to completely reposition their portfolios for the New Normal world that will follow.
These are difficult times, and there is no guarantee that they may not get worse. But they also remind us of the critical need to move beyond the Age of Oil, and develop more sustainable energy resources for the future.
Automakers are ahead of the game in terms of strategic planning. They soon realised the move to EVs meant their traditional business model, based on proprietary engine technology, would inevitably become obsolete. And so they quickly realised they need to pivot to focus on AVs and become software-driven. The rest of us need to catch up.
The issue is simply that investors are in a state of Denial. And so there is a growing risk of a financial crisis as reality finally dawns on them.