- September 23, 2020
- Posted by: CFA Society India
- Category:BLOG, Events
Speaker: Nathan Sheets, PhD, Chief Economist and Head of Global Macroeconomic Research, PGIM Fixed Income
Contributed By: Shivani Chopra, CFA, Member, Public Awareness Committee- CFA Society India
Mr. Nathan Sheets in his talk on “Key themes that will frame Post-Virus economy” stressed on various deep factors at work which will lead to a low volatility macroeconomic environment but a higher volatility political environment.
Important themes to watch out for:
Theme 1: Monitoring of Critical Risks
The virus outbreak has completely changed the financial and economic landscape of the world. Changes like higher unemployment levels are likely to have hangover effects in post COVID era. There has been an extraordinary monetary and fiscal stimulus provided by central banks. However, these policy decisions will spring up a few risks as below-
- Risk of inflation
- Risk of asset bubbles due to higher liquidity
- Risk of sustained and slow growth due to higher public debt levels and deterioration in private sector performance
Theme 2: Sectoral Rebalancing
As we come out of the pandemic, we will have a distinct set of winners and losers. The top sector in the winners’ category will be technology which was already essential but will be even more powerful and central. Other sectors that will do well are e-commerce and consumer staples. In the losers’ category, we will have airlines, hotels, restaurants, theatres, etc.
Theme 3: Tectonic shifts in Productivity
People have started using a new set of tools like Zoom, Webex, etc. As a society, we have learnt to do business differently. With the help of technology, we have reduced our travel time drastically. Although we will return to work with higher levels of productivity, the risk of higher unemployment (due to sectoral rebalancing) will counterbalance this positive theme
Theme 4: Intensified Economic Inequality
The other side of the COVID outbreak will see a more significant gap in income inequality as the poor people have been impacted disproportionately. The lowest-paid workers have no choice but to go out of homes for work and have been more exposed to the virus. This theme is closely associated with global politics as well and likely to impact the US to a greater degree as 2020 is an election year in the country.
Theme 5: Ageing Global Demographics
This factor has been quietly affecting the economic performance around the world for a few years now. Many advanced economies, as well as emerging markets like China and Korea, are seeing/will see a contraction in the working-age population. In India, the active workforce participation rate will continue to grow, albeit at a much slower pace than in previous decades. There is mounting evidence that suggests that as societies get older, they generate a reduced demand. The investment professionals should bear in mind the likely impact of this theme on different industries.