Having thoroughly depressed you yesterday with the big worries for 2022, I'd like to perk you right back up again today with something more cheery.
Seeing as it's New Year's Eve, let's have a think about what could go right next year.
Half-full No. 1: Covid fades fast
The best development next year would be if we finally shook off this virus. I don't know about you, but I'd quite like Christmas 2023 to be more like I hoped Christmas 2022 would've been – normal.
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On that front, there is – I say this tentatively, as unlike everyone else on Twitter, I'm not an epidemiologist – increasing evidence that Omicron is not as severe as the Delta version of Covid, even though it spreads faster.
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Let's say that by the end of January, it's clear that Omicron is no longer a big threat. The winter panic starts to subside. Let's say we then discover a new variant (whatever the non-offensive Greek alphabet letter happens to be). Everyone panics again.
Then it turns out that the new variant is so ineffectual in the face of triple-jabs, leftover covid antibodies and pills designed to keep covid patients out of ICU, that even the most partisan panic-mongers struggle to make the case for further lockdowns.
Wouldn't that be lovely? We can all adapt to an ever-so-slightly better world where we go outside, we socialise, we have fun, some of us work one more day from home a week than we did three years ago, business booms – particularly for the service industries – and everyone can travel widely again.
That'd keep the "Roaring 20s" scenario on track for a bit longer at least.
Half-full No. 2: Inflation stays around – but it's good inflation, not bad inflation
You might think that the best outcome would be for inflation to fade. But that's not the case. If we go back to weakening inflation and perpetual money printing, all that will happen is that asset prices will continue to inflate and people will grow angrier and angrier at rising wealth inequality.
Of course we don't want ultra-high inflation either – when it starts to be persistently above even 5%, never mind 7% (which is where UK inflation is right now, judged on some measures) – inflation becomes disruptive to the economy and certainly to markets.
In an ideal world, we'd see moderate inflation (a bit above central bank targets, but not much more than 3%-4%) accompanied by "real" wage increases. Would this be bad for corporate profit margins? Not necessarily, because if you can get the sort of decent growth picture which this implies, then companies will be earning the higher profits they need to accommodate higher wages and greater investment, and still do a decent turn.
Of course, the most overvalued stuff that doesn't make a profit and perhaps never will would struggle under these conditions, but that's OK, because those companies arguably shouldn't ever have been able to raise the funds they have in recent years.
This is also the least disruptive outcome politically, because it enables our governments to steadily inflation away the debt they've built up during the covid era.
Is it likely? A lot of things need to go right. This is very much a Goldilocks scenario. So I wouldn't necessarily bet on it. But we're being glass half-full today remember? And there is another factor which might help – as I'll explain next.
Half-full No. 3: Productivity booms
One really interesting point raised at our Christmas roundtable (which is in the current issue) is that a lot of companies have been forced by Covid and lockdowns to restructure and tighten up their businesses (or they've taken the opportunity to do so). Part of this involves cleaning up balance sheets, but part of it also involves investing more in digitalisation.
In other words, we have many companies which have been through a painful period, but have come out of the other end leaner and more efficient. That should be good news both for profits and for productivity. If you then combine this with "bright side number one" – the end of covid as a major threat – you have a recipe for something that might even approach a productivity boom. And as we all know, productivity (in effect, doing more with less), is how we all get richer in the long run.
Half-full No. 4: An energy breakthrough
Most consumers across the globe – but particularly in Europe as a whole – are facing a brutally expensive winter (or the prospect of wearing parkas indoors all the time). But perhaps this will provide the wake-up call that governments need to take this energy transition stuff seriously and that some hard choices will need to be made.
It's all very well talking about silver bullets and clean hydrogen and keeping our fingers crossed that nuclear fusion is suddenly genuinely around the corner this time (rather than "coming within 20 years" as it has been since before I was born).
But we're here right now. So what do we do about it? Nuclear power looks like an obvious transition solution. Decentralisation of grids might be another one. Perhaps accept that sticking with natural gas as a less-harmful alternative to coal for the moment is a good idea, and that we should try to at least have more of it on tap in case of emergencies, if nothing else.
Whatever the answer, it'll be expensive and it'll be disruptive. But given the voter-led pressure that will surely materialise to find an answer, we might actually make a breakthrough – a political one, not a technological one – that enables us to plot a realistic path to the future of energy generation.
OK, I think that's enough optimism from me for this year. As I said, these aren't forecasts, more scenarios to ponder – but we can always hope.
We'll be taking a break on Monday 3 January (we may be in pseudo-lockdown, but that doesn't mean we can't still enjoy New Year), but we'll see you bright and early on Tuesday 4th.
Until then, enjoy the weekend and see you in 2022!
