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

After the closing bell at the New York Stock Exchange on December 13, 2023, the screen will show the Dow Jones Industrial Average.

Brendan McDermid | Reuters

The global economy is moving into a new ‘super cycle’, with artificial intelligence and decarbonisation as driving factors, says Peter Oppenheimer, head of macro research in Europe at Goldman Sachs.

“We’re clearly moving into another supercycle,” he told CNBC’s “Squawk Box Europe” on Monday.

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

The most recent major supercycle the world economy has experienced began in the early 1980s, Oppenheimer said when discussing the contents of his newly released book, “Any Happy Returns.”

It was characterized by a peak in interest rates and inflation, before a decade of falling capital costs, inflation and rates, as well as economic policies such as deregulation and privatization, he explained. Meanwhile, geopolitical risks have eased and globalization has intensified, Oppenheimer noted.

But not all of these factors are now set to continue as they have been, he added.

“We’re unlikely to see interest rates come down as aggressively over the next decade, we’re seeing some movement towards globalization and of course increased geopolitical tensions.”

The Russia-Ukraine war, largely trade-related tensions between the US and China, and the Israel-Hamas conflict that is raising concerns in the wider Middle East are just some of the geopolitical themes that have troubled markets in recent months and years.

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

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

The hot topic of artificial intelligence and productivity, which often goes hand in hand with debates and concerns about replacing or changing human jobs, is likely to affect the economy.

“The other thing is (that) we haven’t seen yet, and I think we’re relatively positive that we’ll see, (is) productivity improvement on the back of AI applications, which could be positive for growth and certainly for margins,” Oppenheimer said.

Despite AI and decarbonization being relatively new concepts, there are historical parallels, Oppenheimer said.

One historical period that stands out is the early 1970s and early 1980s, which he says were “not so dissimilar” to current developments. Elevated inflation and interest rates may have been more structural problems than they are today, he said, but factors including rising geopolitical tensions, rising taxes and increased regulation appear similar.

In other ways, the current shifts can be seen as a reflection of changes even further back in history, Oppenheimer explained.

“Given this huge double shock that we’re likely to experience, a positive shock from technological innovation at a very rapid pace, coupled with the restructuring of economies towards decarbonisation, I think it’s a period that’s really more like what we saw in the late 19Thursday century,” he said.

This historical period is characterized by modernization and industrialization driven by infrastructure and technological development, along with significant increases in productivity.

Crucially, these historical parallels can provide lessons for the future, Oppenheimer emphasized.

“When we look back in time, cycles and structural breaks repeat themselves, but never in quite the same way. And I think we have to learn a little bit from history, what are the conclusions that we can look at, so that for this kind of environment, to which we are moving.”

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