Goldman Sachs’ ‘State of World’ report: buckle up!

Goldman Sachs’ ‘State of World’ report: buckle up!

The Iran Deal: defeat snatched from the jaws of victory

Hi there Intriguer. Jean-Luc Godard, the revolutionary French-Swiss filmmaker who pioneered French New Wave cinema in the late 1950s and 60s, has died aged 91. Godard was known for his radical approach to filmmaking and often experimented with semi-improvised scripts and non-linear storytelling. Godard died “peacefully at home” in Switzerland by assisted suicide, with his wife Anne-Marie Mieville at his side.

Today’s briefing is a ~5.0 min read:

  • 💰 The challenges ahead: Goldman Sachs warns investors of deglobalisation, decarbonisation and demographic shifts.
  • ➕ Plus: An update on the Iran Nuclear Deal, India places export limits on rice, and the Solomon Islands’ PM successfully postpones the country’s general election

🎉 The winner of our Intrigue Summer Contributor competition is…Kieran Cash! Congrats Kieran; your Amazon gift card is on the way. You can revisit his piece on Chief Heat Officers here.


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Goldman Sachs drops some knowledge

In brief:

  • The world’s most infamous investment bank says we’re moving into uncharted territory as deglobalisation, decarbonisation, and demographic shifts present challenges and opportunities for investors and policymakers.
  • As a result, Goldman Sachs analysts suggest embracing regional diversification and leaning into long-term economic shifts.

The World Uncertainty Index. Source: IMF

The analysts have spoken

No, this isn’t the news that Goldman Sachs plans to lay off hundreds of employees this month in anticipation of a global slowdown; you can read the New York Times for that.

It feels strange to type this, but we’re more interested in Goldman’s summer-quarter asset management report. Cringeworthy name aside, ‘Inflection Points’ is worth a quick peruse, even if you’re not a finance whiz.

  • The key takeaway from the report is that volatility will be a constant from now on. Old-fashioned analytical tools won’t cut it, and our policy planning must return to first principles.

Goldman’s big Ds

Unlike the baddies in a martial arts movie, real-life challenges never arrive one by one. Policymakers and investors are going to have to manage several dynamics at the same time:

🌎 Deglobalisation

The coronavirus pandemic supercharged the move away from globalisation. Between geopolitical tensions and supply chain disruptions, companies and governments are scrambling to re-shore or near-shore production. Semiconductors are a perfect example of this trend.

  • “Whereas globalization tended to reduce prices for goods and labor […], a partial unwind would likely increase them.”

💾 Digitisation

While trade in physical goods is declining, commerce in the digital realm is going strong. Businesses are digitising, leaning into automation, and trying to keep up with growing e-commerce demand.

  • “Globalisation may be slowing in tangible areas but accelerating in intangibles.” 

🍃 Decarbonisation

A widespread transition towards a greener economy is underway and is likely to intensify in the future. That will bring long-term benefits but short-term price hikes.

  • “A shift to more electric power will significantly alter the commodity landscape and increase the geopolitical importance of a handful of countries rich in copper, nickel and lithium.” 

🌪 Destabilisation of the geopolitical order 

If relatively stable global politics characterised the era of globalisation, then the opposite will be true for the era of deglobalisation. In the future, Goldman Sachs analysts see the world reorganising into two main blocs: the “West” on one side, and Russia, China, India and the oil-producing countries on the other.

  • “New alliances may also create a more uncertain environment that weighs on consumer and corporate confidence and possibly changes governments’ fiscal spending priorities.” 

👴🏻 Demographics 

Labour force participation rates in high-income countries have been declining for some time, but the trend has become more pronounced since 2020.

  • “The importance of Millennial Consumers – the majority of which live in emerging economies – is also altering consumption patterns, with more of it moving online.” 

A few tips for the future

The report offers ideas on how policymakers and investors can navigate our rapidly changing world:

  1. Geopolitical events across regions are less likely to be correlated than in the past, so regional diversification will be your friend.
  2. The green transition and de-urbanisation are here to stay. Embrace them.
  3. Rethink your strategies, whether you’re in policy or finance. The more insulated you are from supply chain disruptions and major cost input inflation, the better.

The bottom line: Volatility is back for the foreseeable future, making the rules and tools we applied 20 years ago less effective today. Rethinking assumptions and conclusions from first principles will be vital for policymakers and investors.

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Southeast Asia & The Pacific

🇦🇺 Australia

The defence department’s ‘incoming government brief’ has warned the Albanese government of a growing cybersecurity risk from insider threats.

  • Current and ex-employees with legitimate access to data and systems may maliciously or unintentionally divulge the Department of Defence’s data.
  • According to a top cybersecurity expert, the pandemic has worsened insider threats: employees are more likely to seek revenge, financial compensation, or simply make mistakes.

🇮🇳  India

According to an industry official, India’s rice export ban has frozen the Asian rice trade, as sellers delay deals to benefit from rising prices.

  • India imposed a ban on the export of broken rice and a 20% duty on the trade of other types of rice last week to stabilise domestic rice prices after a disappointing planting season caused by below-average rainfall.
  • India accounts for 40% of the world’s rice shipments, so any change in its agricultural policy will inevitably affect the global price and supply of rice.

🇸🇧 Solomon Islands

Last week, the Solomon Islands’ Parliament passed a constitutional amendment allowing Prime Minister Manasseh Sogavare to postpone the general election until 2024.

  • Sogavare insists the tiny Pacific nation cannot hold an election and a sporting event all in one year.
  • However, the opposition has accused Sogavare of staging a power grab, while Western policymakers are worried about the Solomon Islands’ deepening ties with China.

🇵🇭 The Philippines

The Philippine Statistics Authority’s newest income survey concludes that more Filipinos live below the poverty line today than in 2018.

  • The number of poor Filipinos has increased by a little over two million due to the Coronavirus pandemic and ineffective governance.
  • The situation could be even worse than the survey indicates because it was done in 2021 and uses a “poverty threshold that is considered unrealistic by other experts”.

🇻🇳 Vietnam

Vietnam, Laos and Cambodia launched a joint research and rescue exercise on Monday, aiming to deepen interoperability between emergency response teams.

  • The exercise is the first to be conducted under an agreement signed in 2019 by the three countries’ defence ministers.
  • It has been a busy old summer for the Vietnamese Armed Forces, who participated in multiple military exercises, including with India and Indonesia.

The Iran Deal: Where are we now?

Source: Giphy

Stop us if you’ve heard this before… Progress in reviving the 2015 Iran Nuclear Deal has stalled again after Western officials questioned Tehran’s commitment to a new deal.

  • Negotiations have almost passed the 18-month mark, prompting the governments of France, Germany, and the UK to release a statement on Saturday publicly doubting Iran’s willingness to return to the Joint Comprehensive Plan of Action (JCPOA).

Why it matters: The future of the Iran Deal is of enormous consequence for the region and for global efforts to curb nuclear proliferation. But more to the point, the continuous cycle of disappointment has eroded what little trust there was between the parties.

  • Meanwhile, Iran keeps stockpiling enriched uranium.

The best-case scenario now probably looks something like what Crisis Group’s Iran Project Director Ali Vaez laid out yesterday:

“European or regional intermediaries may need to shift from hoping for the best to planning against the worst by quietly nudging Tehran and Washington in the direction of tacit understandings that keep a lid on nuclear and regional brinksmanship.”

A deal looks very unlikely: Several formidable forces are lining up against concluding a new Iran deal before the US midterm elections in November, or at all:

  1. Trump-supporting Republicans hate it, and Iran won’t want to conclude a meaningful deal until it’s sure the US won’t rip it up a few months later.
  2. President Biden is hoping to prove pollsters wrong and keep control of Congress – he won’t want to give Republicans the ammunition of a new deal with Iran.
  3. Israel opposes the new Iran Deal, saying it won’t prevent Iran from developing a nuclear bomb.

As things stand, an attack against Iran’s nuclear facilities is probably more likely than getting the Iran Deal signed.


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