After a warm September, it feels like we´ve gone straight into a colder period. This applies not only to the Swedish outdoor temperature, but also to our global environment. Now we have not only a war in Ukraine, but also a war between Israel and Hamas. Extremely tragic for these people and makes the world worse for all of us.
The global trend is continued too high inflation and thus the need for high interest rates. The central banking system of the United States, the Federal Reserve, which is the global benchmark, will probably soon reach the target interest rate, and then let the interest rate affect inflation, among other things. The market seems to believe that the Federal Reserve will soon be chicken out, but it is not certain. Central bankers read a lot of history and they know they will be evaluated by history. Therefore, they are likely to think carefully about next steps. Federal Reserve chief Paul Volcker (1979 – 1987) is famous as the one who cracked inflation in the 1980s. He did so by raising the interest rate to 20%. When he took office, he first raised the interest rate, but in a politically created brief recession, he quickly lowered the interest rate. Inflation remained, however, and he had to raise the interest rate again, and now even higher, up to 20% during 1981. Today’s manager probably therefore does not want to lower too early and make the same mistake as Paul Volcker (“The Volcker mistake”).
Unfortunately, we have an uncertain outlook for the coming years. In the best of worlds, inflation decreases and central banks can start to lower interest rates, but hopefully never again to the zero-interest rate that was a bad economic experiment. The key to lower inflation is likely to be access to affordable energy again. Several times we have had global energy crises that led to inflation. Those of us who are a little older remember the 1970s with two oil crises and even queues at the petrol pumps.
The global oil consumption is already at pre-pandemic levels, and many years of underinvestment will affect future energy prices. During this autumn, we again see tendencies towards higher prices for oil, and the price development in the short term depends a lot on the coming winter. A mild and pleasant winter in Europe is needed for inflation to go down and to soften the recession that is likely to characterize 2024.
For us in Sweden, industrial production stills look quite good (B2B), but private consumption will likely weaken considerably during this autumn and next year. We see it clearly in construction and sectors that previously benefited most from historically low interest rates. Even banks, which have had 30 years of steady growth, have lost growth if you measure the amount of deposits and loans with the public. A clear sign of the times.
It is in this kind of uncertain environment that we companies must navigate. As usual, it’s about customer focus, keeping your feet on the ground, using previous experiences, using common sense, and implementing the right measures. We must always remember that after clouds and rain comes sunshine…
Henrik Molenius
Chairman of the board, Ankarsrum Electric Motors AB
