Board Agenda: Podcast

The Macro Memo - Global Trends Briefing for Boards & Directors - Looking ahead to 2024 - prospects for inflation & interest rates; risk of trade wars & the global shortage of labour skills.

January 16, 2024 Questor Media Season 1 Episode 3
Board Agenda: Podcast
The Macro Memo - Global Trends Briefing for Boards & Directors - Looking ahead to 2024 - prospects for inflation & interest rates; risk of trade wars & the global shortage of labour skills.
Show Notes Transcript

The Macro Memo podcast looks ahead at prospects for 2024. Some observers think the inflation crisis is close to resolution. But is it? And what are the implications for business and, most importantly, interest rates.  

Those are some of the big questions tackled by The team—Mark Kennedy and George Lagarias of Mazars, and Gavin Hinks of Board Agenda, who also look at the risk of trade wars and whether the EU’s concern with Chinese electric cars reflects bigger issues.

Lastly, this episode looks at labour markets and how companies will cope with a global shortage of skills, a big theme of the World Economic Forum’s meeting this year in Davos.

[00:00:03.620] - Presenter

Welcome to Macro Memo, a Board Agenda podcast, exploring the impact of macroeconomics and geopolitics on business with Mark Kennedy, George Lagarius, and hosted by Gavin Hinks. To access thousands of articles, guides, reports, and our upcoming events, sign up or log in at That's


[00:00:27.130] - Presenter

This episode is brought to you by Mazars, the international audit, tax, and advisory firm helping businesses around the world operate and grow with confidence.


[00:00:41.360] - Gavin Hinks

Hello, and welcome to this episode of the Macro Memo. My name is Gavin Hinks, editor of Board Agenda, your essential source of corporate governance news and insight. This is our regular briefing on the macro trends affecting business and trade.


[00:00:57.070] - Gavin Hinks

We have a packed agenda to work through in this programme, with lots of big issues that could bust your bottom line. We'll be looking at inflation, whether that's turning into a good news story, we'll take a look at trade wars, and what the fallout will be for business. Lastly, we'll talk about the labour market, where it's going, and what to do to find the talent you need for your organisation.


[00:01:18.600] - Gavin Hinks

But as always, first on our agenda is a hearty welcome to our resident macro maestros, Mark Kennedy joining us from Dublin, and George Lagarius down the line from Athens. Welcome, Mark and George.


[00:01:31.890] - Mark Kennedy

Hi, Gavin.


[00:01:32.020] - George Lagarius

Thank you for having us.


[00:01:33.990] - Gavin Hinks

No, not at all. He's glad to speak to you again. I'm glad to speak to you again, I should say, for the new year programme. On that subject, Mark, coming to you first, it is the new year. Are you feeling bullish or bearish about 2024?


[00:01:49.640] - Mark Kennedy

I am feeling cautiously bullish, and that's because I'm always an optimist in January. I don't see the point of starting the year on a downbeat. So I always try to look to be upbeat. I suppose I have two reasons. '23 was a tough year in some ways, but things have emerged battered but not broken. I give you two examples. One is around the debt position. Government debt is very high, but we're not in a crisis position and people are reacting to it. So that's an example of something which one could be negative about, but I'm taking a more positive view on it.


[00:02:30.700] - Mark Kennedy

Similarly, we had some bank failures last year and some big business failures if we go a little bit further afield. But systems didn't break. So from that point of view, I'm thinking battered but not broken. Not a bad place to start '24, even if it is a volatile world. On the positive side, I see a couple of things that are perhaps going in our favour. I mean, I think the AI developments of last year really do give us a platform for maybe some big steps forward.


[00:02:58.460] - Mark Kennedy

I'm thinking examples like life sciences, where you can see applications that are very positive and very positive for society if we start to see cures for things developing more quickly and so on. So there's challenges there. But I think technology, I read somewhere over Christmas that I think the spend on green energy was, globally, 1.1 trillion last year, split pretty evenly between China, the US, and the European countries. So again, that's a big change from 10 years ago and a reason for optimism, in my view.


[00:03:31.450] - Gavin Hinks

Reasons for optimism, George, although I got to tell you, I'm always slightly bearish in dry January myself.


[00:03:39.520] - George Lagarius

Generally speaking, since we like to use animals, I'm a lot of animals, I'm bullish when it comes to the economy. The economy is doing better than what we previously anticipated. It is slowing down, but it's doing better than previously anticipated. We could see this in the US, we saw this in the UK numbers just this morning. We see that service sector is holding up and improving, and we see global manufacturing bottoming out. So the recession scenario, the deep recession scenario, is far away.


[00:04:15.220] - George Lagarius

A moderate negative print for GDP for one or two quarters is a possibility, but that is also being removed. I'm bullish about the economy. As such, I am hawkish about interest rates, because if the economy is doing well, then you can't expect sharp interest rate drops in the first quarter or so.


[00:04:41.380] - George Lagarius

You would expect... I still expect rate cuts, but near the mid to end of the year rather than the beginning, which is what some market observers expect. As such, I'm slightly bearish the financial markets who are pricing in interest rate cuts very early in the year. At the same time, I'm a bull, a hawk, a bear, and if anyone is interested, my spirit animal is the otter.


[00:05:10.440] - Gavin Hinks

George, you've gone full menagerie there. You'd be very welcome at London Zoo right now, I suspect. Thank you for that.


[00:05:18.250] - Gavin Hinks

Mark, coming back to you, I hear you've been on your travels. You've got a postcard for us from Montreal, I understand.


[00:05:23.920] - Mark Kennedy

I do. I was in Montreal in December for our annual partner conference, where we gather our partners from around the world and there's about a thousand of us gather together each year. I was never in Montreal before. It is a fantastic city. Lovely people, genuinely really nice people, quite European. Even though it's on the other side of the Atlantic Belt, kind of home, in a way.


[00:05:49.050] - Mark Kennedy

Three things I took away from it. A little bit of trivia is, number 1, apparently, in the Americas, North and South, as a city, to hold a big conference. That was a total coincidence. We didn't know that when we decided to have our conference there. But that's something the tourist board were advertising when we were over there.


[00:06:06.000] - Mark Kennedy

But the other thing, I suppose, I took away was it struck me again, thinking about Montreal, which is, like a lot of cities, it's famous for some things, but two of the things it's famous for are very resonant with what we're talking about everywhere in 2024. One is it's where the first Internet search engine was invented. So a link to AI and so on, which I didn't know.


[00:06:27.500] - Mark Kennedy

The second is that it is, of course, the home of the Montreal Protocol, which I didn't know, which was the protocol where countries agreed to solve the ozone problem. So a bit of optimism if you look back and say, "Well, maybe we can do something on climate change this year."


[00:06:42.080] - Gavin Hinks

What a great place to be. It's also known as a city of festivals, I understand. So Mazars brought their own shindig there. I'm sure that was quite a happy party.


[00:06:51.530] - Mark Kennedy

We had a social evening as well, yes. It was good fun.


[00:06:54.120] - Gavin Hinks

I'm sure you did. I'm sure you did.


[00:06:56.040] - Gavin Hinks

George, I hear you would like us to bow to some knowledge from Japan that you've got for us by way of a postcard.


[00:07:02.260] - George Lagarius

Yes. I have to say that the year did not start out very well for my Japanese friends, both with the earthquake and the freakish accident at Haneda airport. Although, having said that, it is a miracle that 300-odd people made it out of there alive.


[00:07:22.650] - George Lagarius

Before that, what would a brief visit to Tokyo would tell you? First of all, it's interesting to know Tokyo was not always called Tokyo. It was called Edo, and it wasn't the capital of Japan until possibly the 19th century. I think that was Kyoto, and they moved it over there. Tokyo means eastern capital or something. I was told to choose Haneda Airport instead of Narita Airport, which is very interesting because that's where the accident happens. So in retrospect, I don't feel great with that choice.


[00:08:03.090] - George Lagarius

There are many stations called Shinjuku, which really confused me at the time. Meanwhile, the economy is not feeling very well. It picked up earlier in the year, in 2023, but the service sector has been weakening ever since, and the manufacturing weakened again just as it was about to pick up. Japan is suffering because China is suffering. Japan is China's biggest trading partner.


[00:08:37.190] - George Lagarius

All in all, it did not start out the year as a happy country. There is a silver lining. The Nikkei index is at its highest point for the first time since 1990.


[00:08:49.540] - Gavin Hinks

Oh, wow.


[00:08:51.280] - George Lagarius

That's around the time Die Hard was shot. I'm just saying that that is definitely a milestone.


[00:09:00.460] - Gavin Hinks

That is definitely a milestone. That is quite the journey from 1990 to now for the Nikkei.


[00:09:05.590] - George Lagarius

Yes, very much so.


[00:09:07.810] - Gavin Hinks

Well, thank you for that, George. Let's move on to our first agenda item. Agenda item 1. We said we were going to talk about inflation. This is fascinating. It seems like we may have good news to talk about here. I've got a note in front of me. The US inflation down to 3.4% from around 6.4% in January last year. For the UK, we're at 3.9% from around 10.5% in January last year, and the eurozone now at 2.9% from around about 8.6%. George, what's happening? The economy seem to be sorting themselves out.


[00:09:48.510] - George Lagarius

Yes. Look, inflation was never going to be that sticky and stay around 5%. For this to happen, you need very protracted series of supply shocks similar to the 1970s. We didn't get that. We had two major inflation waves. But this comes on the back of 14 years of quantitative easing and 14 years of consumers being very careful after the global financial crisis.


[00:10:17.380] - George Lagarius

To have sustained inflation, people need to go out and spend. They need to make big capital decisions. After the global financial crisis, we just don't see that. From a demand side, we were never going to see very high inflation. Now, having said that, that's the good news, because there's the bad news. Inflation at 3.4% in the US is the highest in three months.


[00:10:43.440] - George Lagarius

Economists did not expect to rebound. I would argue that they are blind, because oil is up 10%, wheat is up 10%, copper is up 10%, and PMI reports the Baltic Dry Index is up 50%. All PMI reports have been telling us that supply chains are seeing higher input prices. The global geopolitical imbalances are feeding into inflation right now.


[00:11:12.340] - George Lagarius

Whereas we do expect inflation to even climb down from that 3%, probably to a range around 2.5%. We don't expect this to be linear, we expect this to be volatile, which is going to affect macroeconomic policies of central banks.


[00:11:32.100] - Gavin Hinks

That's very interesting. Mark, does that mean if there's this volatility in inflation—first of all, do you agree with that? And secondly, does that mean there's any basis for business to start making decisions on the basis of where inflation is?


[00:11:46.720] - Mark Kennedy

I do agree, first of all. I think we are looking at a volatile landscape going out, and it's for reasons that are not economic at their core, I think is what's driving a lot of that. I think businesses can make decisions, and I think the certainty that I'd hang my hat on, George may have a slightly different view, but I think we agree on a core fact, which is interest rates are unlikely to fall. I think businesses can plug that into their planning and say, "Right. Okay, that's something that I'm going to have to deal with."


[00:12:20.890] - Mark Kennedy

I think if I take the one-year outlook, my expectation is that the cost growth story for a lot of businesses will not be as negative as it was last year and the year before. So we're not going to see that at the same rate. It's about rate of change. I think costs will rise, but maybe not at the same rate. I think prices are starting to look a bit more static. I hear a lot of businesses now saying they're struggling to pass on costs in the way they might have in the last couple of years.


[00:12:51.240] - Mark Kennedy

So that evidence of a kind of, while volatile in a narrower range, is kind of where my feeling is. With that backdrop, I think businesses can make plans. I think the plans that businesses should be thinking about are really focused on the efficiency of their business and making sure that they're managing margin and managing cost and managing, in particular, the efficiency of their balance sheet. Because in a time like this, it could be, it depends on the business.


[00:13:20.930] - Mark Kennedy

There is an investment potential, and I'll come back to that in one second. I think the point I was making more broadly is the old accountant's adage of cash is king is very true at the moment, and that managing your balance sheet effectively and getting the maximum efficiency out of that asset base is really, really important.


[00:13:38.980] - Mark Kennedy

Now, in terms of investments, I think there is a potential for investment. I think that a lot of people will say, "Well, the cost of money has gone up, and interest rates are going to stay that bit higher." But let's take a long view. That's normal. Money has a cost, and it should have a cost, and we've lived through an artificial period, and I think good businesses will adjust to that and there is potential to invest. So I wouldn't be afraid of investing in '24 and going into '25.


[00:14:04.720] - Gavin Hinks

George, over the last few days, at least here in the UK, where I'm based in London, there's been a lot of speculation about at least the Bank of England bringing down rates sooner than was expected. You don't agree with that? You think they'll hold on where they are for a little bit longer?


[00:14:20.630] - George Lagarius

I think that's wishful thinking. As I said, GDP grew for the month, the latest imprint that we have by 0.3%. The housing market is holding up. So why would the central bank that still does not know how inflation is going to behave, why would it risk lowering rates? Central bankers are afraid. Their whole mandate, the independence of central banks, is based on the idea that they are the designated inflation fighters. If they lose that credibility, then their independence mandate will definitely come under review. It is core to their existence that you do not have an inflationary environment.


[00:15:08.920] - Gavin Hinks

There is some question, is there not, about whether the interest rates have made the difference to inflation or whether it's other factors?


[00:15:16.930] - George Lagarius

Well, this is a sort of chicken-and-egg thing. There are a lot of people who say, "Well, why put interest rates up?" Even some of them say they contribute to inflation. Look, in the UK, first of all, I get it. I get the argument. If inflation is supply-side-driven, then how does putting up interest rates help, especially since we haven't seen demand collapsing? But there was a lot of excess liquidity post-pandemic that needed to be drained from the system.


[00:15:58.800] - George Lagarius

There were a lot of excess savings. Whereas we said we haven't seen inflation stay around the 5% level, this happened because we drew liquidity from the system. Had we not done this, you could have seen people just keep spending and spending and spending, and that would drive inflation, since after a point it rose, and you could have persistent inflation of 5% to 7%. You needed to drain it. There was a lot of extra liquidity related to the pandemic. I think future economic historians will acknowledge this as a sort of monetary singularity.


[00:16:34.450] - Gavin Hinks

Mark, you want to come in there? That's an interesting observation.


[00:16:37.040] - Mark Kennedy

It is. I think it hits the nail on the head. As George was speaking, there was probably a couple of points going through my head. One was that as well as being the guardian of inflation and monitoring that stat, some central banks, not all, the ECB doesn't have this in its mandate, but a lot of central banks have the mandate of managing inflation and employment. If you look at the employment stats in a lot of the bigger economies, there is no incentive for central bankers to drop interest rates at the moment because the employment stats are not actually that bad.


[00:17:13.390] - Mark Kennedy

They're in a zone where the magic number has always been in people's head as about 2%. We're at 3% to 4%. It's still a bit high. If I'm a central banker, I'm going to keep interest rates where they are and not start that liquidity flow again that George referred to. The other point that I think is important, and it touches on your comment about investment. One of the functions of interest rates is to drive good investment decision-making. When you have free money, it drives an awful lot of not so good investment decision-making.


[00:17:47.560] - Mark Kennedy

I think, again, my feeling is, maybe it's my optimistic January view, I think we're heading back into a more normalised economy than we've seen for quite a while, and that will be an adjustment for businesses, but it doesn't mean stop doing business. Good businesses will do well in this environment.


[00:18:04.870] - George Lagarius

Just to add something to what Mark said, the period, the 14-year period between 2008 and 2022, we saw massive capital misallocation. We saw financial markets draining money from where it could have gone to real economies and real businesses. So what Mark is saying is actually crucial going forward. If there is normality, that actually means more flow of money for real businesses, for Main Street instead of Wall Street. That could make a key difference for wages, for GDP growth, for corporate growth, as opposed to just the growth of financial asset prices.


[00:18:47.810] - Gavin Hinks

Mark, I suppose with higher costs of capital settling higher, business models have got to be sharper and more focused.


[00:18:58.020] - Mark Kennedy

Yeah, that's it. I mean, as George has just said, it's about good asset allocation and good return on investment. The other factor, which is maybe a more psychological or human factor, a lot of business leaders in their 50s and 60s, and even some in their 40s, lived through the crash, lived through the recovery, led businesses through that. They're pretty robust, a lot of senior business leaders.


[00:19:29.010] - Mark Kennedy

So I think they won't look at the cost of capital as something that they're going, "Let's stop." I think they'll look for good investments and good ways of making profit. Again, maybe I'm a bit optimistic this January, but that's what my feeling is.


[00:19:43.660] - Gavin Hinks

Well, that's an optimistic note to end that item on. Let's move on to agenda item two, as we marked at the top of the show: trade wars. Now, we raised this subject because the EU has decided to investigate the Chinese electric car company BYD, and the possibility that they believe that it's being oversubsidized and flooding the EU market.


[00:20:09.270] - Gavin Hinks

But I want to come to you first, George, is this a sign of a greater tension in trade relations around the world? It's not just about electric cars.


[00:20:19.290] - George Lagarius

Of course. Look, trade war started around... I mean, there were always trade tensions as China ascended as a global power. If you remember, it was a big struggle to get China into the WTO. There were a lot of conditions it had to meet. The world has never really been the same ever since it did so.


[00:20:42.070] - George Lagarius

But the issue with China is that because we say trade wars, but the keyword here is China, right? The issue with China is, and has always been that trade is means to an end, whereas in the west trade is sort of its own end. This fundamental difference is now hitting home because western countries are wondering whether they are aiding China that has a different end other than economic success. So it's deep and geopolitical.


[00:21:23.390] - George Lagarius

Having said that, we also need to acknowledge that trade wars are an America/China thing more than they are a Europe/China thing. According to data from the OECD in the recent outlook, Europe has actually significantly increased trade with China in the past five years. So it's really mostly between the US and China.


[00:21:48.560] - Gavin Hinks

And indeed there's been an EU delegation in China attempting to calm relations over trade out there.


[00:21:54.770] - George Lagarius

I suspect Europe will play an intermediary role.


[00:21:57.830] - Gavin Hinks

Mark, what's the impact for business here? Because trade wars presumably affect some sectors more than others.


[00:22:06.280] - Mark Kennedy

Yeah, absolutely. Maybe before that. I think there's two things you stand back in the particular case you mentioned. One is this is geopolitics in action. The reason I'm saying that is not because it's a blinding insight, but there was a view that business around the world, we've seen in the last couple of years that politics is back in a big way, and it's going to stay there for, I would say, the next decade or so, if not longer.


[00:22:33.210] - Mark Kennedy

Second thing is that particular case, I think, is a bit of a reaction to China imposing limitations on EU tech companies selling into China, which was part of the reason for that delegate or was part of the narrative around the delegation that you referred to a moment ago.


[00:22:50.790] - Mark Kennedy

We're at a point in European-Chinese relations which I think is interesting. And like George, I believe ultimately Europe will play a more positive role and be a bit more of an intermediary in that regard.


[00:23:02.320] - Mark Kennedy

In terms of businesses, what does this mean? It means cost and profit impacts for businesses depending on the exposure they have, particularly to China. But let's not forget there are closer-to-home issues around, not trade wars, but trade relations.


[00:23:20.970] - Mark Kennedy

We're living in a more fragmented trade environment than we used to be. For anybody who's exporting, importing, supply chain, maybe relying on outsourced arrangements and so on, this is all becoming much, much more complex, which means more cost, which means less profit in a very simple way.


[00:23:38.870] - Mark Kennedy

The other probable factor in some businesses, particularly retail-focused businesses, where you're business to consumer sectors. You're looking at consumer satisfaction and customer satisfaction when what you've ordered doesn't turn up from China or wherever else it's coming from. Businesses are grappling with that.


[00:23:58.590] - Mark Kennedy

I think one of the reactions is to rediscover a lost competence, which was there up till probably the 1980s and even into the 1990s, which a lot of big businesses were good at, negotiating a fragmented trading world. And that's something that I think we've got to in those sectors where you're doing a lot of multinational trade, we've got to get that back into businesses and be prepared for that.


[00:24:22.470] - Gavin Hinks

George, the trade wars are not just going to rest with China in the EU, but they could become a little bit more tense if Trump is reelected at the end of the year.


[00:24:32.490] - George Lagarius

Yes, Trump. Look, the one thing we can say about Donald is that he's unpredictable. And yes, you're right, they could become worse. But we have to acknowledge that since Mr. Biden got elected, actually, things became a lot more tense. It was Nancy Pelosi's visit to Taiwan that sparked a lot of talk and a lot of aggression between Taiwan and China.


[00:25:09.740] - George Lagarius

What I'm trying to get at is relations have been steadily deteriorating, and I would say at a reasonably fast pace, probably since 2015 anyway. So it's not a one-person thing. Can he make things worse? Absolutely. But so can Biden, if he's reelected.


[00:25:36.810] - George Lagarius

And by the way, on this subject, I would like to say that this is a year where you might see surprise in any of the two conferences, Republicans and Democrats. If I were a betting man, I would not bet my money right now to Trump versus Biden. You could see surprises.


[00:25:59.370] - Gavin Hinks

Well, some of those surprises we can look forward to, I'm sure. Mark. My next question to you was going to be about how businesses adapt to a world which is caught up in trade tensions. But I think you've answered that partly by talking about those competencies around functioning in a more fragmented world.


[00:26:24.350] - Mark Kennedy

Yeah, in a way. I mean, a bit more specifically, maybe there's a couple of tasks that I think you need to do. First of all, is understand your market, understand your supply chain, which companies do, but maybe look at it again with new regulations and potentially new restrictions coming online as we go through the year.


[00:26:41.320] - Mark Kennedy

You have to get your compliance and risk management functions thinking about this. If you're a big enough business, and you have those, because the risk of breaching sanctions, of making errors, is higher and that brings more costs and more difficulty. So get those functions thinking about it, as I say, large or small as they may be.


[00:27:01.670] - Mark Kennedy

I think for companies where they've got a very long or complex supply chain or manufacturing chain, diversifying that is going to be something that a lot of companies are going to turn to and try and look at their client base then, and how you best serve that client base, maybe in a slightly different way, which is, again, part of an investment agenda.


[00:27:25.590] - Mark Kennedy

And I think for UK businesses, if I turn back to just our own landscape, let's not forget that one of the biggest markets in the world is on our doorstep. And one of the positive things that I saw towards the end of 2023 was some polling in the UK, which suggests now that if there was a Brexit vote tomorrow, more than 50% would vote against it, that the same decision wouldn't be made.


[00:27:52.230] - Mark Kennedy

Now, I'm not being political here. I'm not suggesting we go back into that debate. What it tells me, though, is that there's an appetite in the UK which is a little bit warmer to Europe than it has been. And I think for, look at Europe, let's see what we can do. It's not as complex a landscape, and it's a massive market. So that would be my advice to a lot of UK businesses.


[00:28:11.270] - Gavin Hinks

Yes, the culture is definitely shifting around our relationship with Europe, but I would observe as well, I imagine business leaders right now have never had to be so focused on geopolitics as they are right now.


[00:28:26.470] - Mark Kennedy

Not since the 1970s.


[00:28:27.240] - Gavin Hinks

Not since the 1970s, no, absolutely not. And it's come in a rush right now. Let's move on to our third agenda item: Labour Markets. I made some notes before we started making the programme because there was reading around the issue.


[00:28:43.570] - Gavin Hinks

We've got a global workforce that's ageing, technology, that's moving at a faster rate than skills can keep up, potentially a slowing, glowing global economy. And plenty of observers pointing out that the race for talent and skills is going to be one of the forces that shapes the global business environment. George, what is going on? What is happening to labour markets?


[00:29:09.670] - George Lagarius

We are growing old, and old people don't know how to program computers. There it is. Gavin, I'm 44. If you ask me to be a coder at this age, I'd never be able to do it. I tried. I tried it five years ago. I failed miserably back then, and now I'm 44. I'm hopeless.


[00:29:31.780] - George Lagarius

But this is the point. We need an increasingly different skill set than the one we were taught. The world is just moving too quickly. The soft skills we were taught in school are useless. The soft skills we were taught during our formative years in business are also useless.


[00:29:53.920] - George Lagarius

Case in point, when I joined my first bank in 2005, I had asked permission to go on a lunch break, and I would be probably refused at that. Try now telling somebody that they can't do a lunch break. They'll take you to HR in less than 10 minutes.


[00:30:23.010] - George Lagarius

The point I'm making is that what we learned, we need to unlearn at an increasingly faster pace. I think that the key soft skill of our age is unlearning and then relearning. But it is extremely difficult because people, because of their evolutionary mechanism, they are creatures of habit.


[00:30:45.540] - George Lagarius

They tend to learn and adapt. They don't tend to relearn. Okay, that's a mouthful. And relearn.


[00:30:54.500] - George Lagarius

And I think this is what is happening. It is the ageing demographic that is behind this. I could tell you a few more stories around the pandemic about how the 62 year-olds plus dropped from the workforce and how the younger people went back to university because they felt the need to upskill.


[00:31:14.530] - George Lagarius

Okay, but these are on the fringes. The larger thing issue is demographic, especially in the west.


[00:31:24.420] - Gavin Hinks

Absolutely. And I sympathise with the coding argument there. I gave myself a 1-hour Python course the other day, and I am no further forward in knowing anything about Python than I was at the very opening minute of that course.


[00:31:40.310] - Gavin Hinks

Mark, the World Economic Forum has a paper on its website saying that 40% of the working population will have to acquire new skills largely as a result of artificial intelligence. That's a huge training and education programme that we have to go through.


[00:31:58.790] - Mark Kennedy

It is. And I suppose to kind of comment on that, I think George is half right and half kind of right. We have a shortage. I think it's interesting to look at what the big. If you just look at what the various agencies that do studies tell you in terms of what we're short of, you have the shortage, and you have a time of change, and you're dead right on that. It is a significant time of change.


[00:32:27.020] - Mark Kennedy

The professions and the jobs where we're short of people, healthcare, very high up there. In almost every study I looked at science, maths, very high up there, financial services, accountants, those professional roles and skilled trades, so quite highly educated in each case.


[00:32:50.220] - Mark Kennedy

And I think George nails it in a way that some of that is demographics, particularly in Europe and in the west, and then you have this concept of, "Oh well, everything's going to change and we've got to relearn everything." I'm more positive about it. It is a big change programme, but I don't think we're throwing everything we learned out the window.


[00:33:12.860] - Mark Kennedy

I'm a bit more positive about the softer skills than George is because I think there's a case to be made for in a time of emerging artificial intelligence, natural intelligence or human intelligence.


[00:33:26.800] - Mark Kennedy

And I think the skills, if you talk to people who are in the AI industry, and they say what do we need to train the next generation on? They'll say things like critical thinking and judgement, abstract reasoning, empathy, and emotional intelligence and communication and collaboration.


[00:33:39.950] - Mark Kennedy

Now, the reason I listed the jobs that seem to be high on the missing list at the moment is because they're all jobs where those skills are very highly valued. So there is definitely a retraining exercise to be done by companies in the next decade. I think they know that, but I think they're reasonably well-equipped to do it. And I think the jobs where we have gaps is where you'll start to see that get filled in over time.


[00:34:04.280] - Gavin Hinks

George, I liked your example of not being able to go for lunch without asking, but that surely sounds like we've just become a more civilised world with more civilised workplaces. I do wonder though, what governments can do at a macro level to counter the skills issue or the labour market issues.


[00:34:26.320] - George Lagarius

So that is an interesting question and I'll be honest, I don't think, look, you could do reskilling programmes and all that, but I don't think that it is the function of government to. Sorry, I don't think it is the function of government to help in this respect.


[00:34:50.520] - George Lagarius

I think the function of government is to focus on schools. I think we have a massive gap between what is taught in university and the reality people face right out the door. And I don't think it's necessarily even the fault of universities. They have a curriculum and that curriculum has been successful in years and review is always incremental.


[00:35:12.700] - George Lagarius

But the world is not moving in increments anymore. With technology, the world is moving in leaps and bounds. I think it's time for universities to start thinking about that. I think governments can start plugging the gap between education and the early jobs market, and then it is the work of companies to fill in the gaps.


[00:35:40.600] - Gavin Hinks

Mark, I was going to put that question to you. What do companies do? They've surely got to increase their investment in skills and training and presumably also in remoulding their workplace conditions as well.


[00:35:53.470] - Mark Kennedy

Yeah, I think that's right. And I think George is right in that I disagree with him in one way, but he's right. Companies have a very important role in terms of reshaping and shaping what people do. And there's an old debate about vocational education as opposed to education for education's sake.


[00:36:13.290] - Mark Kennedy

Probably the best things universities can teach us is the ability to learn at the end of the day, because in most people's lifetimes, they're going to change their career and they're going to change the skills they need as they go through life. I think the role of companies in reskilling is incredibly important. I think companies, most companies realise that and have access, have created programmes.


[00:36:35.090] - Mark Kennedy

I think if I was to suggest a couple of areas to look at in the short term, I think there is, definitely, given the demographic situation, a benefit for a lot of companies to look at offshoring and outsourcing and filling that need in a slightly different way. There's clearly a case now to look at the productivity gains that can come from AI. I think '24 is going to be a crucial year in people seeing the wood from the trees on what can this new interface really, with a developing technology do for us.


[00:37:06.970] - Mark Kennedy

The other thing that I think a lot of companies can do, and the UK is a very good example of where it's been done well over years, is really address DNI issues and look to bring more people into the workplace from different backgrounds that maybe haven't accessed today. And I think that's something that companies can very much do.


[00:37:27.490] - Mark Kennedy

But there's one area where I disagree with George, I said, on the government role in reskilling, and I think it's a longer-term problem. It's not so much about the shortage of human capital today and it's around the area of business model change due to climate change, where I think some industries will change profoundly.


[00:37:46.390] - Mark Kennedy

I think government has a role there. I think you see that in the plans that some countries are making already, which is very positive.


[00:37:53.490] - Gavin Hinks

Mark, thank you very much for that. We're coming to the end of our time on this programme. Thank you very much for all the insight you've provided, the two of you. I just want to get quickly from you some notes about what to look out for in the coming month. Coming to you first, Mark, we have a very important date in February.


[00:38:11.910] - Mark Kennedy

Yeah, 24th February is two-year anniversary of the invasion of Ukraine. It's not an anniversary that any of us will be marking with anything other than sadness, I think. And it doesn't look like '24 is a year where that conflict is going to end, unfortunately.


[00:38:29.410] - Mark Kennedy

I suppose, other than acknowledging it, and I suppose that's important in its own way, the hope is that we do find peace. I think that the Davos team this year is restoring trust. And I think the UK, EU, the US, and China have a lot of influence on what happens there, so maybe they can restore a little bit of trust by working together on that issue.


[00:38:56.260] - Gavin Hinks

Definitely, that's a high priority. George, coming to you, your diary dates. I imagine you'll be watching closely for what central banks do.


[00:39:03.210] - George Lagarius

Yes. In the window between 23rd January and 1st February, 5 key central banks, well, if you go to 6th February, that's six central banks are announcing interest rates. The Fed, the ECB, the Bank of England, the Bank of Canada, Bank of Japan and Australia, all within a brief period of less than two weeks.


[00:39:29.600] - George Lagarius

Now, why is this important? Because last we heard of central banks, they were all hawkish except for the Fed that just at the turn of the year revealed its dovish stance and gave the impression that might be cutting interest rates quicker and faster than previously anticipated, which sparked a huge market rally by the way.


[00:39:55.050] - George Lagarius

Having said that and following that, what happened was that long-term yields fell, so borrowing rates fell, so rate cuts are as good as having happened. It's interesting to see if central banks will double back on some of that dovishness and will we see more hawkishness, especially given evidence of resurgent inflation going forward? I think it's going to be a super interesting ten days.


[00:40:27.190] - Gavin Hinks

It's going to be certainly an exhausting ten days for you covering all of that, that's for sure. Well, that brings us to the end of our programme. Mark Kennedy, George Lagarius, thank you both very much for joining us on the Macro Memo this month.


[00:40:44.190] - Mark Kennedy

Thanks, Kevin.


[00:40:44.600] - Gavin Hinks

Well, that's all for this programme. Plenty for our viewers to think about there. There's no doubt that 2024 could be a very big year for both economics and business. Thank you to George Lagarius and Mark Kennedy for joining us. And don't forget to hit subscribe on your podcast provider to ensure you don't miss the next show. Goodbye.


[00:41:07.580] - Presenter

That was a podcast brought to you by Board Agenda. To get the best in boardroom thinking and access a hub of expert insight, intelligence and resources for boards and directors sign up or log in at That's