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Book of British Luxury

Predictable Unpredictability

Uncertainty is the new normal, says Tom Standage, Deputy Editor of The Economist, in our latest extract from the Walpole Book of British Luxury 22/23...
13th Jul 2022
Book of British Luxury Predictable Unpredictability

For a brief moment in late 2021, it looked as though things might be getting back to normal after the chaos and disruption of the pandemic. But then three unexpected shocks arrived in quick succession: the Omicron variant of the coronavirus, a surge in food and fuel prices, and the Russian invasion of Ukraine. This unholy trinity will continue to shape the business landscape in the coming months. There will be no going back to normal. Indeed, the rest of the 2020s are more likely to look like 2021 or 2022 than they are like 2018 or 2019. The pre-pandemic world is gone, and is not coming back. And there are sure to be more shocks to come, whether from extreme weather events or unexpected technological shifts. Welcome to the era of predictable unpredictability.

Start with the coronavirus. For vaccinated people in the rich world, particularly if they have survived a bout with the virus already, it no longer poses a deadly threat. But do not count it out just yet. It still poses danger in less vaccinated parts of the world – and in China, where the population has been jabbed with a less effective vaccine, and where the government favours a “zero covid” strategy. This means brutal, city-wide lockdowns that close factories, disrupt supply chains and clobber GDP growth, both within China and globally. The virus will hamper both supply and demand for high-end electronics and other goods, and feed into inflation for months to come.

One way to think of the current outbreak of inflation, in fact, is as a lingering economic side-effect of the virus. Since 2020 consumer spending has shifted from services (such as going on holiday) to goods (including big TVs, video-conferencing gear and other items to make staying indoors more palatable). That was good news for anyone selling fancy goods, but it overloaded supply chains and drove up prices. Governments’ efforts to juice the economy after the slump of 2020 added fuel to the fire. In retrospect, America in particular went too far with its stimulus, and its central bank failed to hit the brakes soon enough. The big question for the coming months is whether the Federal Reserve can now engineer a soft landing, taming inflation without causing a recession.

In the meantime, people on lower incomes face a cost-of-living crisis, though for wealthier consumers the post-pandemic urge to splurge seems set to be only slightly dented, at least outside China.

Russia’s attack on Ukraine further exacerbated price surges, as a major energy exporter invaded a major food exporter, disrupting supplies of both. But it affected the business world in another way too, prompting many companies to pull out of Russia in response to its invasion. Such withdrawals were, in many cases, driven by cold economic logic. Russia is a relatively small market for most Western firms, and economic sanctions have made it difficult to keep doing business there anyway. Firms that stay face a backlash from Western consumers. It is the latest example of how companies increasingly find themselves caught in geopolitical struggles, in industries from apparel to chipmaking.

Were China to attack Taiwan, companies would face much more difficult choices, given how tightly integrated their supply chains are, and China’s much greater importance as a market for Western firms. But such an attack seems less likely in the short term considering the unexpected strength both of Ukraine’s military response and of the economic sanctions imposed on Russia by the West. Both have given China pause.

Meanwhile, a lasting consequence of the war will be to accelerate Europe’s transition towards clean energy. Buying an electric SUV now lets wealthy consumers signal their opposition not just to climate change but to Vladimir Putin too.

In this time of turmoil, it is no use waiting for things to go back to the way they were, or hoping for the emergence of a reassuring new stability. The much more unstable world we now find ourselves in – whether because of the unpredictability of the pandemic, the economy, geopolitics, climate change or rapid technological advances in areas from digital currencies to hybrid working – is the new normal. It is already here, so we might as well get used to it, and focus on looking for the opportunities that change always presents.

This is an extract from the Walpole Book of British Luxury 22/23
Read here

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