Back to the future: 2020s to echo  roaring 20s or inflationary 70s? For some, a post-pandemic economic boom accompanied with optimism about the future echoes the 1920s. Others reckon this decade is beginning to feel like the 1970s, as dormant inflation awakens

LONDON. – The 2020s have only just begun but there is already a rush to draw parallels with the past, prompted by a belief that COVID-19 will mark a turning point for the world economy and financial markets.

For some, a post-pandemic economic boom accompanied with optimism about the future echoes the 1920s. Others reckon this decade is beginning to feel like the 1970s, as dormant inflation awakens.

Whatever path the decade takes will of course matter for the trajectory of stocks, bonds, currencies and commodities.

“Changes, shifts and dynamics of narratives matter in the formation of long-term expectations and ultimately (market)prices,” said Amundi CIO Pascal Blanque.

In the 1920s, technological and scientific advances led to mass production of goods and the electrification of America, alongside booming stock markets and wealth.

Fast forward to the 2020s and the global economy is expected to grow 6% this year, a rate not seen since the 1970s. Stocks are near record highs, and tech valuations at their highest since the late 1990s dotcom peak. COVID-19 appears to be a catalyst for technological change, spurring digital adoption.

No wonder parallels are drawn with the “Roaring Twenties”.

The 1920s ended with a stock market slump and economic depression, but economists believe policymakers have heeded lessons from the past and are unlikely to turn off the money taps too fast.

“A lot will come down to the extent to which monetary and fiscal stimulus translates into real productivity and improvement in structural growth rates,” said Kiran Ganesh, head of multi asset, UBS Global Wealth Management.

“Then we are in a roaring 20s scenario, but if the investment ends up wasted we are going back to the 2010s . . . when it proved very hard to generate growth.”

The chances that the 2020s revisit the 1930s – when households struggled to recover from a downturn, birth rates fell and inequality fuelled populism — is a possibility but is not considered the most likely.

Figures quoted by Oxfam show the world’s billionaires became $3.9 trillion richer between March and December 2020 even as economies shrank and tens of millions of workers lost jobs.

There are signs governments are trying to narrow yawning disparities. – Reuters

 

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