Michael Every, a seasoned strategist at Rabobank, offers a comprehensive view of the global economic landscape, touching on crucial topics like inflation, the risk of recession, shifting power dynamics, and energy security. His analysis provides a candid look at the challenges central banks, governments, and markets are facing. Here are the key points Every raised:
The Inflation Challenge
One of the most pressing concerns in the global economy, according to Every, is inflation. He explains that inflation is not just a temporary spike but rather a sustained issue driven by several factors, including disrupted supply chains, a changing labour market, and the rising cost of raw materials. The pandemic, he argues, acted as a catalyst for inflation, creating a perfect storm of demand surges and supply shortages.
While there are signs that inflation might ease in certain areas, such as energy costs, Every stresses that it remains a major problem globally. He points out that governments, too, have contributed to inflationary pressures through expansive fiscal policies that have resulted in high public debt and deficits. This leaves central banks facing the delicate task of bringing inflation under control without triggering severe economic downturns.
Central Bank Response: A Tightrope Walk
Every’s analysis of central bank actions is particularly sobering. He observes that central banks, particularly in the US and Europe, are now caught in a difficult position, as monetary policies have often been out of sync with the rapidly changing global economic environment. Despite raising interest rates to curb inflation, Every warns that further hikes could trigger significant economic consequences, including recessions in major economies. The higher rates could also create immense pressure on financial markets, asset prices, and the housing market.
In this context, Every highlights a key risk: the potential for a hard landing, where the combination of high inflation and rising interest rates could lead to a sharp economic contraction. Such a downturn, he suggests, would not only hurt financial markets but could also have long-lasting effects on global trade and consumer behaviour.
The Risk of Global Recession
Every doesn’t shy away from discussing the likelihood of a global recession. According to him, the economic slowdowns in major economies, particularly the US, make a global recession increasingly likely. The intertwining of high inflation, tightening monetary policy, and slowing growth could create a perfect storm, pushing many economies into recession.
Although Every acknowledges that recessions are an inevitable part of the economic cycle, he underscores that the coming downturn might be more prolonged and painful than usual. With high levels of public and private debt across the globe, the ability of governments to stimulate economies in the same way they did during past recessions is severely limited. This makes the current environment particularly perilous.
Geopolitical Shifts and the Decline of US Economic Dominance
Another major theme of Every’s analysis is the shifting global power dynamics, particularly the decline of the US dollar’s dominance and the rise of China. He notes that the geopolitical landscape is rapidly changing, with countries looking to decouple their economies from one another. This trend is particularly visible in the ongoing rivalry between the US and China, which is shaping trade, technology, and investment patterns.
Every believes that the US could eventually lose its status as the world’s economic superpower as countries increasingly turn to alternatives to the dollar for trade and reserves. He points to China’s growing influence in global finance, as well as its push for greater regional integration through initiatives like the Belt and Road Initiative. With these developments, the US may face challenges to its global economic dominance, reshaping global trade and finance in the process.
Energy Security and the Future of Global Trade
Energy security is another area where Every sees major shifts taking place. The global energy market, particularly in the wake of the war in Ukraine, is facing significant disruptions. The scramble for energy resources, alongside rising demand from emerging economies, could lead to volatility in global energy markets. Every also notes that countries are rethinking their energy policies, with an increasing focus on diversification away from fossil fuels towards cleaner energy solutions.
In this context, Every predicts that the energy transition will not be smooth and may trigger new geopolitical tensions as nations compete for energy resources and new technologies. As governments move toward decarbonisation, there is also the challenge of balancing these goals with the economic needs of their populations, creating a complex challenge for policymakers.
A Shifting Landscape for Investors
For investors, Every suggests that the current environment is one of heightened uncertainty. The mix of inflationary pressures, recession risks, and shifting geopolitical dynamics makes it difficult to predict how markets will behave. Investors, he notes, need to adopt a more cautious approach, reassessing their portfolios and considering strategies that can weather potential downturns.
The key takeaway for investors, according to Every, is the importance of diversification and risk management. In an environment where central banks’ policies are in flux, global economic growth is slowing, and geopolitical tensions are rising, investors must be prepared for significant volatility. Every also stresses the need to understand the macroeconomic forces at play, as these will drive much of the market’s movements in the coming years.
Currency Depreciation in Emerging Markets
An important insight Every shares is his view on the currencies of emerging markets. He explains that, due to the strengthening of the US dollar and the continued tightening of monetary policy by central banks, currencies in emerging markets are likely to face further devaluation. This depreciation could exacerbate inflation in these countries, leading to more financial instability. These nations, already burdened by debt and inflation, may find it increasingly difficult to manage their economies without falling into deeper crisis.
Michael Every’s insights on the global economy offer a sobering view of the challenges ahead. From inflation and recession risks to geopolitical shifts and energy security concerns, it is clear that the world is entering a period of significant change. His reflections on these issues were shared in a recent conversation with Adam Taggart on the Thoughtful Money YouTube channel. As Every explains, the key to navigating this uncertain future lies in understanding the interconnected forces shaping the global economy and making informed decisions in response.
