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Chris Iggo

It is increasingly evident that this is not a normal business cycle. While there are elements that are familiar – tight labour markets, inflation and monetary tightening – many of the dynamics are unique.
During the pandemic, global gross domestic product fell, then recovered at the fastest pace in living memory. Since then, inflation has been at its highest in a generation. There will continue to be short-term uncertainties on inflation, interest rates and growth.
There are a few big themes that we need to continue to try to understand: the resetting of monetary policy, continued shock waves from the pandemic and, notably, the growing long-term dominance of science over finance.
Inflation is the symptom of imbalances resulting from years of loose monetary policy and the supply-demand disruptions that followed the pandemic and the Russia-Ukraine war. Rising inflation since last year has called for a paradigm shift in monetary policy.
But economists, financial market participants and central bankers do not appear to know when this shift will be complete and what the eventual implications will be. Central banks have become more reactionary. Any inflation data release deviating from the idyllic path of a quick return to the pre-pandemic utopia of a global 2 per cent rate means central bankers are likely to become more hawkish.
The aftershocks of Covid-19 are very much visible in labour markets. Shortages of workers remains, and participation rates have not fully recovered. In the United States, many sectors were hit hard by the lockdowns in 2020 – for example, in healthcare and hospitality – and staffing levels have barely returned to February 2020 levels, according to US Bureau of Labour Statistics data.

Anecdotally, there seem to be labour shortages and inflationary wage increases. In Britain, Brexit partly explains that. Elsewhere, Covid-19 is a common factor.
Businesses and governments need to respond. It could mean investing more in automation, or contemplating policies that might affect the supply of labour – tax, training, welfare and immigration.
There are positive structural changes though. Several technologies that could generate massive changes to global production either through reducing costs or boosting productivity, or both, have emerged. The combination of the need to combat climate change and the speed at which Covid-19 vaccines were developed has elevated the role of science over finance. That should mean the more efficient deployment of capital going forward.
Technological developments to take advantage of clean energy are rapidly developing and showing up in enterprise spending and government industrial policies. One thing that caught my eye recently is that the price of a basic Tesla electric vehicle, because of falling production costs for batteries and government subsidies, is now lower than the average internal combustion engine car in the US – and by some margin.
The development of new drugs through the advancement of biotechnology, the further automation of logistics chains and transport networks, as well as production facilities, and the application of artificial intelligence in many parts of the service sector are hugely exciting developments. The flow of capital into these activities has started and will accelerate, and the gains could be exponential.


The global economy has been hit by numerous shocks in this century, but science can deliver more resilience. Capital flowing into technology drives a more efficient use of natural resources, improves welfare through better healthcare and reduces the risk of conflict over energy resources.
Structural changes will provide growth opportunities. Decarbonisation technologies are becoming cheaper and more subsidised, meaning they will experience strong growth as the world adapts to net zero. The accelerated adoption of AI will boost software services and technology manufacturing along the value chain and enhance productivity for those enterprises able to adopt it.
Whatever one thinks about cryptocurrencies, digitalisation still has a way to go in the provision of financial services, smart contracts and, where the political will allows, a more efficient delivery of public services, from tax collection and rebates to healthcare and education.
There are several household-name technology companies that have shown non-linear earnings growth over the last 20 years. That is likely to happen again. Look to where those non-linearities might occur. In your appraisals, the science might help more than the finance.
Chris Iggo is chair of AXA Investment Managers Investment Institute and chief investment officer of AXA IM Core


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The global economy has been hit by many shocks and short-term uncertainties remain, but science-led structural changes will provide growth opportunities


The global economy has been hit by many shocks and short-term uncertainties remain, but science-led structural changes will provide growth opportunities.


Stocks

Technology

Banking & finance

China technology

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Climate change science and technology

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Artificial intelligence (AI)

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Global monetary policy

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Column

To find the next big investment darling, just follow the science

.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;}The global economy has been hit by many shocks and short-term uncertainties remain, but science-led structural changes will provide growth opportunities

The global economy has been hit by many shocks and short-term uncertainties remain, but science-led structural changes will provide growth opportunities