After the close of trading on the New York Stock Exchange on December 13, 2023, the Dow Jones Industrial Average appears on a screen.
Brendan McDiarmid | Reuters
The global economy is moving into a new “super cycle” driven by artificial intelligence and decarbonization, according to Peter Oppenheimer, head of European macro research at Goldman Sachs.
“We're clearly moving into a different super cycle,” he said Monday on CNBC's “Squawk Box Europe.”
A supercycle is generally defined as a prolonged period of economic expansion that is often accompanied by expanding GDP, rising prices due to strong demand for goods, and rising employment levels.
Discussing his recently released book, “Any Happy Returns,” Oppenheimer said the most recent significant supercycle the global economy experienced began in the early 1980s.
Oppenheimer explained that this phenomenon was characterized by peaks in interest rates and inflation, followed by decades of declining capital costs, inflation and interest rates, and economic policies such as deregulation and privatization, while geopolitical risks eased and globalization increased, he noted.
But not all these factors will continue as before, he added.
“Interest rates are unlikely to fall that sharply over the next decade or so. We are seeing a backlash against globalization and, of course, rising geopolitical tensions.”
The war between Russia and Ukraine, tensions between the US and China, mostly related to trade, and the conflict between Israel and Hamas, which has raised concerns across the Middle East, are just some of the geopolitical themes that have concerned markets in recent months and years.
While current economic developments should theoretically slow the pace of financial returns, there are also forces that could have a positive impact, such as artificial intelligence and decarbonization, Oppenheimer said.
While AI is still in its early stages, it could have a “positive effect” on stock prices as it becomes increasingly used as the basis for new products and services, he said.
The hot topic of AI and productivity often goes hand in hand with discussions and concerns about replacing or transforming human jobs, which is likely to have an impact on the economy.
“The second one is [that] We haven't seen it yet, but I think we'll be looking at it relatively positively. [is] “The application of AI can lead to productivity gains that can have a positive impact on growth and of course profit margins,” Oppenheimer said.
Although AI and decarbonization are both relatively new concepts, Oppenheimer said there are historical similarities.
One historical period that stands out was the early 1970s and early 1980s, which he said was “not all that different” from the current situation. While rising inflation and interest rates were probably more structural issues than they are today, he said the drivers — rising geopolitical tensions, higher taxes and increased regulation — seemed similar.
Oppenheimer explained that from another perspective, the current changes could be seen as reflecting changes going back much further in history.
“I think with this huge twin shock that we're going to experience — the positive shock of very rapid technological change and the restructuring of the economy towards decarbonization — it's going to be a period that's more similar to what we experienced in the second half of '19.Number “It's the event of the century,” he said.
This historical period was characterised by modernisation and industrialisation, driven by infrastructural and technological developments, and significant increases in productivity.
Importantly, Oppenheimer said, these historical parallels can offer lessons for the future.
“If we look back at history, cycles and tectonic shifts repeat themselves, but they never repeat in exactly the same way. And I think we need to learn what inferences we can draw from history to best position ourselves for the environment we're heading into.”
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