MACRO-ECONOMIC ANALYSIS: THE IMPORTANCE OF CREATING VALUE

IHAD SPENT much of 2022 speculating and pontificating about the trajectory of major segments of the world’s economy based on a few core observations, primarily zeroing in on the relationship between value and personal ownership – and the impact of that on the global economy.

In my previous articles, going back a while, I had highlighted the persistence of the “fragility” of economic growth experienced in much of the world in the period since the Great Financial Recession of 2008 and how the reality of the intervening period has been a serial decline in productivity rates. What has kept up the numbers in the interim has been largely slick financial engineering, with extended bouts of suppressed interest rates and rabid money printing – oh, quantitative easing – propping up valuations and keeping people away from the reality of their positions. The years since the outbreak of the coronavirus pandemic, in 2020, has seen the abrupt and forceful dismantling of this stubborn edifice of propped-up value cutting across sectors in the economy.

Those governments, businesses and even individuals who kept away from asking the tough questions regarding their fundamental utility and value propositions and from making the necessary changes during this extended lease of financial rope are in the throes of being faced with their moment of reckoning in the wake of the triple crises: One, the coronavirus pandemic and its fallout; two, the runaway inflation in developed economies, forcing central banks to go on a warpath by raising interest rates for the first time in 30 years, not once, not twice but a total of eight times within two years; and three, the Russia-Ukraine War and its multifaceted impact on global energy supplies, global commodity supplies and on climate change mitigation efforts.

What we are witnessing is increasingly turning out to be the summary reversal of so many of the trends that defined the preceding three to four decades. I had previously called it “The Great Unbundling”; The Economist has preferred to call it “The Great Reversal”. I was there before them!

Whichever way the wind blows, the core question remains, as much for the individual as for businesses and governments, “Where do I find value?” The experience of the past few years has made it abundantly clear, and the turbulence of the coming few months will only double down further on the point, that it is only the cultivation of enduring value that will enable an enterprise at any level to survive and continue. All that the aforementioned triple crises have done is to take the cover off those who had not been working on improving their productivity and had, consequently, been living off the froth of an abnormally conducive environment.

The changes are abrupt and discomforting and span across a wide range of areas, simultaneously. Like the abrupt rise in interest rates is signalling the unwillingness of capital providers to continue to subsidise risky bets in business and commerce, and the abrupt withdrawal of NATO from key operational areas such as Iraq and Afghanistan is signalling the unwillingness of the traditional security providers in the region to continue to subsidise risky security bets in international relations. Overall, the world’s appetite for risk or largesse has undergone a severe deflation. The response from economic entities will be as expected: There will be balance-sheet trimming, there will be asset sales, there will be contract renegotiations and there will be lay-offs.

Governments that are running budget deficits will find it more difficult to manoeuvre, as France is finding out to its chagrin, as the country faces