We are zooming out this week to look at the big picture, at the issues that may shape our future, our lives, the economy and how we manage our money.
The European Central Bank President, Christine Lagarde, gave an insightful speech at the annual Economic Policy Symposium Jackson Hole, Wyoming this week.
Ms Lagarde summarised the three key pressures facing our future as being labour, energy, and geopolitics, and highlighted how these are interrelated.
It is very much a long-term view and that sits well with our approach, that applying long-term analysis and views, and not reacting to what may or may not become the next hot investment trend, and short term reactionary movements.
The speech also highlighted the philosophy underlying the complexity of the current situation and the principles of their approach. In her speech she quoted the 19th century Danish philosopher, Kierkegaard, in stating the complexity of life, and apropos managing economies and markets: “life can only be understood backwards; but it must be lived forwards”.
We state this concept somewhat differently in financial services when we state that past performance is no guarantee of future performance. Indeed, it is said so frequently, that the impact of this statement is often not taken in. The message is important. As stated by Lagarde in quoting Kierkegaard, as an investor, you cannot look to what has happened in history, recent or distant, to project what will happen in the future.
Because the world is a different place compared to what it used to be. Think of investors in horse drawn carriages at the end of the 19th century; past performance for them was certainly no indicator of future performance.
This is the detail of Ms. Lagarde’s speech in stating the factors that are likely to impact our future:
Labour market: How we work is expected to change materially. Digitalisation has increased and the advance of AI is shaking up industries and professions. It means some jobs may disappear, but new professions will be created. This isn’t new; think how many full stack developers there were when our grandparents entered the workforce.
Energy: How we generate and consume energy, with the continued move to cleaner and more sustainable sources of energy, will continue to impact markets. This influences labour as for example, workers in coal mining may need to retrain to work in equivalent cleaner energy fields. It also flows into geopolitics below as some countries that may have derived global influence through the provision of oil, gas, or coal for example, may find their cache’ waning and other’s increasing.
Geopolitics: This third item is on our news screens each day as we see the impact of the war in Ukraine. It is the relationships between countries like the US and China, economic blocs like the EU and BRICS (Brazil, Russia, India, China, and South Africa) and the changes in power and influence as mentioned above. These changes impact the global economy.
The complexity for central bankers is that the levers they have at their disposal, such as raising interest rates, as we have seen in the last year, have a lag, that is they make the change, but the impact is not seen until some time in the future.
Lagarde, speaking for the European Central Bank stated that they do expect to see a change in the type and source of market shocks, driven by the above factors.
What does this mean for you as an expat investor in Europe?
There are three key takeaways:
- It means that what worked in the past may not work in the future.
- These changes, such as to the energy sector, may create opportunities for investors. For example, investing in sustainable energy is likely to attract institutional, and government capital, and likely favourable legislative change to support the sector.
- The focus should remain on the long term, not on what is happening this week or this month. Stay aligned with your objectives and match the timelines of your goals and your investments.
Understanding the factors that may impact you and your future quality of life is important. If you would like more information, and context on how it might apply to you directly or would like to know more about how we can help you, contact us at [email protected].