The shortage economy

Nobody remembers such a tumultuous economical environment like that of the last two years.
Yet, politicians, economists and analysts keep saying that the start of the new normality is around the corner: six months from now, or one year from now, or two years from now and so on. Everybody seems confident about it, but month after month the perspective of the new normality shifts forward.

Covid-19 caused sudden panic around the globe and all governments, still bleeding for the weak reaction to the shock of 2008, injected overnight more than 10.4 Trillion Dollars to keep the economy alive. The current economical exuberance is fuelled by public debt and, while we cannot know how long it can last or if it might ever be compensated by inflation, we still know that it is hardly sustainable on the long run.

Said that, in this post I would like to express my view on the raw materials.

Covid-19 has changed the lifestyle of consumers, who shifted the use of their discretionary income from services to material goods. Who’s going on expensive holidays to Paris or overseas nowadays? Who’s spending in restaurants and spas as before 2020? Very few or no one. Still, the public stimulus and higher savings kept the economic wheel spinning, so people are using their money to purchase more physical goods like cars, electronics, furniture, and so on: goods that require way more raw materials than services.

The natural resources are limited and the production capacity of the raw materials can grow very slowly, so the immediate consequence of their higher demand was explosive and sustained prices.

All this said, the raw materials demand and prices might always face some minor adjustments, but in my opinion the trend is clear and I do not think that any real decline will be possible before our pre-Covid mindset and lifestyle is restored. But Covid-19 has already transformed from a pandemic to an endemic disease, so I can’t really see our past way of life coming back very soon. The strength of man, in fact, is in his adaptability to any situation and, while Covid-19 is among the strongest reshaping forces of the recent times, I think that most can also agree on one thing: now we all feel very limited, but at the same time we also understood that we could live without the excessive exuberance we enjoyed before – can the higher book sales of the last two years be a sign of growing maturity in a time of suffering?

In conclusion, my view is that the raw material prices may seriously start to decline only the day we will all restart buying expensive holidays – Paris, New York, Tokyo, the tropical islands, you choose. I do not think it will be anytime soon, but the good news is that many businesses seem to have already adapted to the new times; some are even doing better than before Covid-19 and, even if the past will not be back, the future will not necessarily be worse. It may just be different.

Nicola Principato