FT’s economic trends for 2022

An article in yesterday’s edition of the Financial Times (see https://www.ft.com/content/432d78ee-6163-402e-8950-d961b4b1312b) described ten economic trends that investors — meaning entrepreneurs and business owners as well as retail investors — should consider in 2022.

The author, Ruchir Sharma, is Morgan Stanley Investment Management’s chief global strategist, and the author of The Ten Rules of Successful Nations.

1. Lower Birth Rates: Declining birth rates have lowered global economic growth, and birth rates declined at a faster pace during the pandemic. In the long run, this will reduce the world’s labour force. In 2021, the number of countries with shrinking working-age populations increased to 51 from 17 in 2000.
2. Smaller Work Forces: In 2021 the baby bust, rising debt, and government interference decreased China’s share of global GDP to one-quarter from its previous one-third. The author notes that the correlation between GDP growth in China and other emerging countries was nearly perfect five years, but barely registers now. He questions if China has peaked as an engine of growth.
3. Massive Government Debt: Government borrowing caused global debt to grow even faster during the pandemic. In the mid-1990s no country had total debt greater than 300 per cent of their GDP; now, 25 do. That group includes the United States. The author believes that these countries will find it difficult to cut back for fear of bankruptcies and spread of the coronavirus.
4. Higher inflation: Fewer workers, more government spending, and rising public debt all point towards higher inflation, but maybe not to the double-digits of the 1970s. Government spending should ease in 2022 and hopefully technological changes will contain prices. However, asset prices have ballooned, and deflation is the usual aftermath of financial markets cratering.
5. Reduced supply of green metals: The battle against global warming has raised demand for green metals such as copper and aluminuum at that same time that raw material supplies of all kinds has decreased. Investment in mines and oilfields has dropped over the past five years. The result is “greenflation” in commodity prices, which just experienced their biggest year-over-year jump since 1973.
6. Lower productivity: Hope that the rapid adoption of digital services during the pandemic would end the long decline in global productivity growth have proven unfounded. The 2020 surge was largely confined to the United States, and declined in 2021. The evidence so far suggests those working from home have lower output despite putting in longer hours.
7. Record Internet traffic: Flows of trade, money, and people all declined during the pandemic. The biggest increase has been Internet traffic, which in 2022 alone could match the total of all traffic up to 2016. Authorities are blocking data from crossing borders, with the most restrictive regulations in China, India, and Saudi Arabia.
8. Bursting bubbles: Some asset classes — cryptocurrencies, clean energy, tech companies with no earnings — have shown classic bubble signs, with their prices doubling in a 12-month period due to manic trading. But over the past year all fell 35 per cent or more from their peaks, a line beyond which bubbles rarely recover.
9. Cooling retail: Retail investors continued to rush into the on-going bull market, but excited late arrivals often signal the party is ending. From the US to Europe, millions of people opened trading accounts for the first time, and many borrowed money to buy stock. The whole stock market may not be at risk, but the most popular stocks might be.
10. Physical resources still matter: Technology does not make physical resources obsolete. Everyone needs shelter, and demand from millennials and Gen Z helped inflate housing markets in 2021. Electric cars consume far more copper than those with internal-combustion engines. Labour shortages are driving wage increases even in jobs threatened by automation, such as truck driving.

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