Geo-Economics Shifts: Ripples

and Waves across the Globe

What to Expect in a Post-Pandemic World?
MAP International CEO Web Conference,
September 15, 2020
Thierry Apoteker, Chairman, TAC ECONOMICS

1
The Next Normal: Why is it so difficult to paint it now?

A highly complex convergence of developments and cycles

with highly different timeframes (from immediate to the next
50 years) and types of business 3implications
avril (long-term
strategies, short-term survival) create an undisputable and
substantial increase in global uncertainties.

Higher uncertainty means simultaneously higher statistical

risk (and should translate then into higher expected returns),
larger plausibility of extremely disruptive events, and
symmetrically numerous “sudden opportunities”.

The Next Normal: What to Expect in a Post-Pandemic World?

September 2020 2
 The Big Five: the convergence in five cycles with highly
different timeframes
1. Secular changes in geostrategic rivalries and the way economic
integration is constructed (the China-US rivalry)
2. Long-term structural changes with short-term accelerators
(supply-chains organization, behavioral changes, demand
preferences and retail, climate change, technology leaps…)
3. Decennial trends in ways policies are conducted (monetary,
fiscal, industrial policies) and social relations are established
(worldwide structure of wages)
4. Traditional 10-year economic cycles with financial impact
5. The Covid-19 global pandemic and immediate health, cyclical
and policy challenges
The Next Normal: What to Expect in a Post-Pandemic World?
September 2020 3
 1. China-US strategic
competition

▪ This mega-trend is “hitting the button” now; it is a long-term

development with very strong causal / historical factors (i.e. it
happened many times before)
▪ It has tremendous consequences for the next few years, with
increased bipolarization impacting trade flows and corporate
constraints
▪ It is highly unlikely to abate any time soon, though the final
outcome remains uncertain

The Next Normal: What to Expect in a Post-Pandemic World?

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1. The China-US strategic competition
50-150 year-long integration trends worldwide… since 2,000 years with
similar sequences in 5 steps:

- Step 1: Emergence / affirmation of a “central” or structuring power;

3 avril
- Step 2: Integration process around the center (rules, institutional set-up),
with global benefits through higher efficiency and larger markets;

- Step 3: Progressive deformation of benefits from integration, with “rent-

income” at the center and declining relative attribution to periphery;

- Step 4: Tensions increase as the hierarchical structure imposed on

international trade entices contenders for primacy;

- Step 5: Combination of technology, rivalry and resentment leads to

break-up of previous integration system and emergence of a new center.
We are now entering step 5 with US vs China
The Next Normal: What to Expect in a Post-Pandemic World?
September 2020 5
 2. Long-term structural
changes and short-
term breaks

▪ Digitization in design, production, marketing and distribution

disrupt traditional production processes
▪ Acute challenges on the balance between empowerment of
individuals and controlling / manipulating capabilities
▪ International trade due to slow and transform with higher
importance of regional trade, exchanges of services and
management of data flows
▪ Climate change will create higher number of extreme events
and reinforces the need for resilience building
The Next Normal: What to Expect in a Post-Pandemic World?
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 2. Long-term structural changes and short-term breaks

World Exports in % of world GDP Structure of total Asian trade by

1825-2013 partner, 2018-2025f (% of total)

Medium-
Term trend 3 avril

Very Long-
Term trend

Long-Term
trend

Source: TAC
ECONOMICS Research

The Next Normal: What to Expect in a Post-Pandemic World?

September 2020 7
 3. Decennial trends in
policies and social
relations

▪ Major bifurcation point for governments’ policies: are we in a

“debasing” of fiat money and benign neglect for indebtedness?
Monetary and fiscal policies in unchartered territories!
▪ Heightened governments’ interference in business decisions
and strategies, in line with international tensions and rising
“populist regimes”.
▪ The 3-decade long “intense worldwide competition on wages”
may come to an end as protectionism and populism combine.

The Next Normal: What to Expect in a Post-Pandemic World?

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3. Decennial trends in policies and social relations

Total Central Banks’ Assets (% of GDP) General Government Gross Debt

% of GDP
3 avril

Sources : TAC ECONOMICS, Datastream , IMF

The Next Normal: What to Expect in a Post-Pandemic World?

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 4. Traditional 10-year
economic cycles with
financial impact

▪ The traditional economic cycles seem to change with multiple

sub-cycles associated with “blind run” economic-policy
reactions.
▪ Generalized mispricing of financial assets is both attributable to
cyclical / monetary developments and macro-consequence of
income distribution.
▪ Traditional cycles still matter, but with more frequent but less
ample oscillations and short-term floors for asset markets
provided by central banks, but with increasing structural risks.
The Next Normal: What to Expect in a Post-Pandemic World?
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 4. 10-year economic cycles with financial impact

demand
Higher fin’l market production
Easing / supportive
prices and higher
policies
global debt 3 avril
employment
Easing policies/ /
Rebalancing
monetary support
disinflation
imports &
wages
relocation
Systemic
Reversal financial
in asset
risk, uncertainties
prices Financial euphoria
inflation
Higher volatility in
restrictive policies
financial markets

The Next Normal: What to Expect in a Post-Pandemic World?

September 2020 11
 4. 10-year economic cycles with financial impact

US Corporate Equities (% of GDP) US real 10-year interest rate

3 avril

Sources : TAC ECONOMICS, Datastream

The Next Normal: What to Expect in a Post-Pandemic World?

September 2020 12
 5. The Covid-19 global
pandemic and
immediate challenges

▪ Worldwide pandemic appears more in control now, though with

heightened geographic disparities; this so far supports the view
of no-return to generalized of strict lockdowns.
▪ Implementation of unprecedented supportive policies to
compensate for dented confidence, with asymmetric V-shape
recovery; No catch-up on previous trajectories before2021H2 .
▪ Worst of financial turbulences for Emerging Markets behind,
but implication on corporate / industrial difficulties yet to be
fully materialized. High differentiation across countries
The Next Normal: What to Expect in a Post-Pandemic World?
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5. The Covid-19 global pandemic and challenges

PMI and Stringency Index

3 avril

Source: TAC ECONOMICS, University of Oxford

The Next Normal: What to Expect in a Post-Pandemic World?

September 2020 14
5. The Covid-19 global pandemic and challenges
GDP growth – Scenarios by region (y/y, %)

Sources : TAC
Sources ECONOMICS,
: TAC Datastream
ECONOMICS, Datastream

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September 2020 15
Candid implications at management level
▪ Though not through a “probabilistic exercise”, the plausibility of
sudden breaks is higher (political, international relations,
financial volatility, poor management of the pandemic,…); need
to work with central scenario and preparedness schemes at
3 avril

corporate level.

▪ Lasting period of low policy / government-bond interest rates,

but also of growing government interference and complex due
diligence in any international expansion

▪ The correlations or commonalities during times of economic,

financial or political stress imply that opportunities arise from
massive mispricing of macro-risks, notably in Emerging Markets

The Next Normal: What to Expect in a Post-Pandemic World?

September 2020 16
 Thank you for your patient attention
Q&A session

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Lohezic,Lohezic,
Head ofHead of Development
Development & Communication
& Communication, -
TAC ECONOMICS
morgane.lohezic@taceconomics.com
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The Next Normal: What to Expect in a Post-Pandemic World?

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September 2020
September 2020