David Wheildon / November 2021
It’s not just the weather that is returning to its autumnal norm; the global economy is now looking to shake off the impact of Covid 19 and the various lockdowns put in place to try and reduce the impact of the disease. The expression used in recent months is a “return to normal” but there is a wide acceptance that the new normal will look very different to what was considered normal pre-Covid.
In the medium term, the traditional rhythms of economic patterns and results will return but perhaps with different twists ranging from shorter and more flexible manufacturing supply lines through a combination of home and office working to new industries and employment opportunities created by the drive to limit further Climate Change. These patterns will rely on the usual suspects such as decent Central Bank control, economic entrepreneurship, the effort and collective will of the workforce and technological innovation; it is without doubt that we will, in future years, be able to recognise the rhythm of these patterns as they progress.
However the historic patterns have been hit with a rhythm stick and, as we predicted earlier in the year, we are now going through a more difficult short-term adjustment to the beginning of life post Covid.
Inflation is the topic of the moment and it is clearly on the move upwards. There are some technical reasons why the inflation figures are rising as prices this time last year were depressed, but the main reason inflation is increasing is down to supply issues. There are various bottlenecks in the global economy – whether it be the slow restart of manufacturing factories, the reliance on global trade, containers and their ships in the wrong part of the world or indeed the ships queuing outside ports unable to unload, or the lack of qualified drivers to shift goods around countries… I could go on! What’s inevitable is that these issues will pass as demand falls, either due to seasonal issues or a reluctance to pay the inflated prices currently being asked, and at the same time the bottlenecks will reduce as the logistics of global trade realign and the imbalance in employment is rectified.
We will see a reduction in inflation in the fullness of time, but we may well see it running at a higher longer-term rate than it has for, say, the last 10 years or so. Rising prices will be something we will have to learn to live with. In this environment it’s crucial to invest in assets that can increase with inflation and in principle these are shares and property; holding large sums on deposit for the medium term in an inflationary environment is not a prudent way to invest.
COP26, the 2021 United Nations Climate Change Conference is taking place in Glasgow and there will no doubt be increasing pressure on us all to alter the way we live and work to reduce the impact we are having on the planet’s climate. It seems that every day there is talk of another initiative to reduce the effects of climate change whether it be electric cars, the banning of gas central heating boilers, greater recycling initiatives, cleaner ways to travel etc. If we think about just one of these issues and consider the change in infrastructure that’s required to move us all to, say, driving electric cars it is immense.
The idea of driving a vehicle to a filling station to refuel will become obsolete as the increasing need becomes a charging point wherever a car can be parked. Where we are used to taking five minutes to refuel a combustion engine vehicle, it currently takes longer to recharge an EV so more and more of our vehicles will no longer be idle when stationary but charging and even smartly dialoguing with the grid. This is only one area of change but just think of the opportunities that are available if (as we must) the global population adapts its way of living across the board.
At a seminar some years ago an idea was put forward that, in time, 40% of the current school leavers would be employed in jobs that had not yet been created. The rush to stop the damage to the planet’s climate may well provide a high proportion of these new jobs as well as providing work for those with existing skills.
We will ride out the current worries in the markets about inflation due to the wide diversification of the portfolios and as we move into 2022 we look forward to the fund managers taking advantage of the changes that are coming in all our lives.
This article is the opinion of David Wheildon,
Director of Skybound Financial Planning.
This article is the opinion of David Wheildon