Goldman Sachs analyst says the world is moving into a new super cycle

Goldman Sachs analyst says the world is moving into a new super cycle

A screen shows the Dow Jones Industrial Average after the closing bell on the floor of the New York Stock Exchange on December 13, 2023.

Brendan Mcdermid | Reuters

According to Peter Oppenheimer, head of macro research in Europe at Goldman Sachs, the global economy is moving into a new “supercycle,” with artificial intelligence and decarbonization as the driving factors.

“We are clearly moving into a different supercycle,” he told CNBC’s “Squawk Box Europe” on Monday.

Supercycles are generally defined as extended periods of economic expansion, often accompanied by growing GDP, strong demand for goods leading to higher prices, and high levels of employment.

The most recent significant supercycle experienced by the global economy began in the early 1980s, Oppenheimer said, discussing content from his newly published book, “Any Happy Returns.”

This was characterized by interest rates and inflation peaking before a decades-long period of falling capital costs, inflation and interest rates, as well as economic policies such as deregulation and privatization, he explained. Meanwhile, geopolitical risks have subsided and globalization has increased, Oppenheimer noted.

But not all of these factors are now likely to continue as they were, he added.

“It is unlikely that interest rates will fall that much over the next decade, we are seeing some decline in globalization and of course we are also seeing increasing geopolitical tensions.”

The Russia-Ukraine war, US-China tensions that primarily affect trade, and the Israel-Hamas conflict that is causing concern throughout the Middle East are just a few of the geopolitical issues on which the Markets have been worried in recent months and years.

While current economic developments should theoretically cause the pace of financial returns to slow, there are also forces that could have a positive impact – namely artificial intelligence and decarbonization, Oppenheimer said.

AI is still in its early stages, he explained, but as it is increasingly used as the basis for new products and services, it could lead to a “positive impact” for stocks, he said.

The hot topic of AI and productivity, often accompanied by debates and concerns about replacing or changing human jobs, is likely to impact the economy.

“The second thing is [that] We haven’t seen it yet, and I think we’re relatively confident that we will see it. [is] “An improvement in productivity due to the applications of AI, which could have a positive impact on growth and of course on margins,” said Oppenheimer.

Although AI and decarbonization are both relatively new concepts, there are historical parallels, Oppenheimer explained.

One of the most outstanding historical periods was the early 1970s and early 1980s, which he said were “not so dissimilar” to current developments. Increased inflation and interest rates may be more structural issues than they are now, he said, although factors such as rising geopolitical tensions, rising taxes and increased regulation appear to be similar.

In another way, current changes can be seen as reflecting changes even further back in history, Oppenheimer explained.

“Because of this huge double shock that we are likely to experience, a positive shock of technological innovation at a very rapid pace along with the restructuring of economies towards decarbonization, I think this is a period more similar to what we are seeing in the “The end of the 19th century,” he said.

Modernization and industrialization, driven by infrastructure and technology developments, as well as significant increases in productivity characterize this historical period.

What is crucial is that these historical parallels could provide lessons for the future, emphasized Oppenheimer.

“If you look back over time, cycles and structural breaks repeat themselves, but never in exactly the same way. And I think we need to learn from history what conclusions we can draw to be best positioned for this type of crisis environment that we are moving into.”

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2024-01-08 13:15:27