For the second edition of Accuracy Talks Straight, Nicolas Barsalou gives us his point of view on the way out of the crisis, before letting Romain Proglio introduce us to Delfox, a start-up specialising in artificial intelligence. We will then analyse the impact of the crisis on the aeronautics sector with Philippe Delmas, Senior Aerospace & Defence advisor, Christophe Leclerc and Jean-François Partiot.
Sophie Chassat, philosopher and partner at Wemean, will invite us to explore the way out of the crisis from a cultural angle. Finally, we will focus on public debt with Jean-Marc Daniel, French economist and Professor at ESCP Business School, as well as on inflationary risk with Hervé Goulletquer, Senior Economic Advisor.

SUMMARY

Editorial

Nicolas Barsalou
Partner, Accuracy

THE CRISIS AND WHAT FOLLOWED*

The crisis that we have been experiencing for almost one and half years now has no equivalent in modern history. It is neither a classic cyclical crisis, nor a replica of the great financial crisis of 2008. It would be dangerous to think, therefore, that we are coming out of it in the same way as previous crises.

What are we seeing? Two words enable us to deepen the analysis.

The first is “contrast”. This is, of course, not the first time that an economic crisis has affected some geographies more severely than others, particularly, in this case, Europe more than the Far East. However, it is the first time that we observe such diversity in the impact on different economic sectors. As a result, some affected sectors will take several years to return to their situation in 2019, like air transport or tourism for example. Conversely, other sectors have taken advantage of the crisis, like online activities (e-commerce, streaming services, video games), or have served as “safe investments”, like luxury goods.

The second word is without a doubt “uncertainty”. Given the tense geopolitical context and unprecedented capital injections in the economy, the current bright spell may lead in the relatively short term to another more classic crisis, made all the more dangerous as recent wounds will not have healed.

As advisers to innumerable economic players across the world, we observe an unprecedented de-correlation between certain market situations and the general state of the economy. On the one hand, the mergers and acquisitions market, boosted by an unparalleled level of liquidity, has rarely – if ever – experienced such exuberance both in volumes and in prices, and this was the case well before the crisis emerged. On the other hand, the corporate restructuring market is also very active, carried in particular by bank renegotiations for certain sectors in difficulty.

This paradox exists in appearance only: given the elements mentioned above, it is possible and quite natural to observe these two trends at the same time.

In this context, we think that, now more than ever, financial and economic players should avoid sheeplike behaviour and analyse each situation in an individualised and tailor-made way.

The most interesting cases to consider are certainly those sectors that are experiencing both positive and negative trends. The real estate sector is particularly relevant because it is undergoing profound and long-lasting change, combined with the effects of the last crisis. Let’s look at two representative sub-sectors: retail and office property.

The first has long been affected by the strong and continued development of e-commerce, a phenomenon that accelerated in 2020 under the effects of the lockdown and the closure of numerous shopping centres, to the extent that the value of retail property at the end of last year was at a historic low. Our long-held belief is that this fall in values was excessive, characteristic of the sheep like behaviour mentioned above and not adapted to the modern economy. Centres that are well located, well managed and well equipped will continue to be major players in retail. It is fortunate that, for a few weeks now, others are beginning to realise this and that these property values are rising again.

The second sub-sector benefitted up to the 2020 crisis from a favourable situation, thanks to a structural mismatch between supply and demand and real interest rates at zero that pushed up the so-called “safe investment” values like property. Moreover, the crisis has until now had little impact: for the most part, rent has continued to be paid and, given an extremely accommodating monetary policy, capitalisation rates and therefore values have changed little. But these two parameters are now threatened. The rise of remote working, if it proves to be long-lasting and significant (more than just one or two days a week), will inevitably have considerable consequences on the number of square metres necessary for office space as well as its location. Not all of these impacts will necessarily be negative: though it is certain that large business centres like La Défense and Canary Wharf are suffering and will continue to suffer, central business districts may see their values and occupation rates continue to rise.

As for macroeconomic parameters, and notably inflation, only an oracle could predict how they will develop: the only thing to do is to remain vigilant and to provide the means to minimise fragility through strategies that favour flexibility and agility. In this respect, it will be essential to monitor the development of the banking sector, but that would be a topic for another discussion…

* “THE MYRTLES HAVE FLOWERS THAT SPEAK OF THE STARS AND IT IS FROM MY PAIN THAT THE DAY IS MADE THE DEEPER THE SEA AND THE WHITER THE SAIL AND THE MORE BITTER THE EVIL THE MORE WONDERFUL THE GOOD”

LOUIS ARAGON
“THE WAR AND WHAT FOLLOWED” (FROM THE UNFINISHED NOVEL)

Delfox

Romain Proglio
Partner, Accuracy

Founded in 2018 in Bordeaux, Delfox is an artificial intelligence platform that uses reinforcement learning to model systems able to evolve intelligently, autonomously and intuitively in a constantly changing environment, without human intervention or programming in advance.

The technology developed by Delfox consists in giving objectives to the AI, which must then find a way to achieve them. When it comes to AI, it is essential to understand that this intelligence is based above all on learning.

It is therefore learning mechanisms that lie at the heart of Delfox’s development, which has progressed significantly for over two years in cuttingedge skills like deep learning and reinforcement learning, as well a s the related advanced algorithms.

The goal is to teach a machine to react autonomously, without indicating how to resolve an issue. The machine itself proposes solutions, which will lead to rewards or penalties; it will therefore learn from its mistakes.

For example, teaching a drone to go from point A to point B does not mean telling it to avoid collisions or to accelerate at certain points of the journey; it is about letting it react by itself and rewarding or penalising it based on the solutions it proposes. Potential applications are vast.

There is, of course, the area of satellites, in which Delfox is already working with Ariane Group for space surveillance purposes. Delfox participates in detecting satellite trajectories based on data provided by the GEOTracker space surveillance network to avoid collisions and interference.

But the fields of application are a lot more extensive than just satellite uses: autonomous military and urban drones, cars, logistics, defence, the navy, and more are all potential areas of interest.

Autonomy will no doubt be a key segment of activity in the next decade, and Delfox is already one of the most successful players in the field. With a team of 15 people, Delfox aims to reach €1m in revenues in 2021 and is already working with Ariane Group, Dassault Aviation, Thales and the DGA (French government defence procurement and technology agency).

The aeronautics industry is feeling the heat

Philippe Delmas
Senior Advisor – Aerospace & Defence,
Accuracy

Christophe Leclerc
Partner,
Accuracy

Jean-François Partiot
Partner,
Accuracy

Air transport is at the top of the list when it comes to sectors most heavily affected by the COVID-19 crisis. Behind it, the entire aeronautics industry is suffering, from manufacturers to equipment suppliers of all sizes. The shock is all the more brutal as annual growth stood on average at 5% over the past 40 years and was forecast to continue at over 4% a year for the decades to come.

In 2020, air traffic fell by 66% compared with 2019, and both the timing and the extent of its recovery remain uncertain. For domestic flights in large countries, recovery will depend on the speed and efficiency of vaccination efforts. It is already strong in the United States (traffic was only 31% lower in March 2021 than in March 2019) and China (+11% higher), but it remains weak in the European Union (63% lower). For international flights, recovery will depend on lockdowns linked to the emergence of new variants and the rate of vaccination in each country, not to mention the confidence that countries will have in each other’s efforts to contain the coronavirus. This recovery is currently very weak. In total, the level of traffic in 2021 will remain much lower than historical levels. At the end of April 2021, the IATA forecast world air traffic at 43% of the level in 2019 (compared with a forecast of 51% in December). Globally, a return to the 2019 level of activity will no doubt have to wait until mid-2022 for domestic flights and 2023, or even 2024, for long-haul flights. Only air freight has experienced continued growth, but it represents less than 10% of all air traffic.

Several factors lead us to consider that air traffic is not yet ready for a return to the long-lasting growth experienced in the decades before the crisis (5% a year from 1980 to 2019), and various arguments reinforce this vision:

– Passengers’ ecological concerns are becoming of prime importance – some will be more reluctant to travel and especially to travel far.

– Large groups have got through the COVID-19 crisis by completely stopping all business travel: short, medium and long haul.

It was an abrupt lesson, with radical conclusions favouring the strict limitation of such travel. As a result, these groups generated significant savings, as well as an improved ecological balance sheet, something monitored by the markets more and more closely. According to the leaders of major European groups surveyed at the end of 2020, business travel may permanently fall by 25% to 40% compared with 2019.

– These two factors are already enough to bring about a significant drop in traffic, but this drop will be compounded by a third factor, an immediate consequence of an airline’s economic model: first class and business class passengers are the major levers of profitability for a long-haul flight. If their traffic is reduced by 25% to 40%, airlines will have no other choice but to increase average prices significantly for all passenger classes.

The impact on prices of the change in behaviour should lead to a new economic balance: a reduction in business class volumes of 30% may lead to an average increase in ticket prices (business and economy) of 15%. With a price/volume elasticity of 0.9, an average fall in economy travel of 13.5% can be expected.

To sum this up, the forecast impact on passenger traffic could be as follows:

– A fall in business class and first class passenger numbers of 30%
– A fall in economy class passenger numbers of 13.5%
– An increase in average sales prices of 15%.

In our opinion, the sudden turbulence in the industry presents a unique opportunity for it to restructure; its untenable financial situation obliges it to do so. The air transport sector has taken out debt of over $250 billion since the beginning of the pandemic, and its total net debt should exceed its revenues during the course of 2021 or in early 2022. Today, the sector continues to lose tens of billions of dollars in cash each quarter, contributing to the rise in its debt levels.

The industry will be forced to overhaul its model significantly, especially given that this economic constraint doubles up as an ecological constraint that is just as fierce. Indeed, air travel is a substantial emitter of CO2, representing up to 2.5% of emissions globally and around 4% in the European Union. In addition, air travel suaffers another constraint that is specific to the sector, namely that CO2 represents only a fraction of its overall climatic impact. The most recent studies (July 2020) confirm that its emissions of nitric oxide (NO) at high altitudes contribute more to global warming than its emissions of CO2.

In total, air travel alone represents 5–6% of humanity’s impact on the climate. But it is not for lack of trying – the industry has been making substantial efforts. CO2 emissions per passenger kilometre have shrunk by 56% since 1990, one of the best performances of all industries. The total emitted tonnage of CO2 has nevertheless doubled over the same period because of the increase in traffic. Ryanair, the European low-cost leader, summarises the climatic impasse of air transport quite nicely: its aeroplanes are very recent, their occupancy at a maximum (average rate of 95%), but it is the company with the highest CO2 emissions in Europe after nine operators of coal power plants.

Technological progress will continue but, for aeroplanes as we know them, it will not be accelerating. As for truly new technologies (hydrogen, electricity), their time will undoubtedly come, but too late to play a significant role in meeting the object ives o f the Intergovernmental Panel on Climate Change (IPCC) in 2050, that is, limiting global warming to 1.5°C and net carbon emissions to zero.

In this context, the industry must reinvent itself, taking into account the following points:

– Growth in traffic will for a long time remain lower than the growth seen in previous decades.
– Progress in energy efficiency will continue but will not accelerate.
– This progress should be completed by credible and rapid climatic solutions (i.e. not offsetting), like clean fuel. Boeing and Airbus recently announced, in spring 2021, their desire to accelerate their use of green kerosene quickly and significantly. But the volumes will be insufficient to meet the objectives of the IPCC.
– The serious issue of high-altitude emissions – currently left out of the equation – will have to be dealt with.
– Owing to and considering the cost of decarbonisation solutions, the cost of air travel will inevitably increase by a significant margin.
– This increase will weigh heavily on the most price-sensitive traffic, tourism, whilst technology will clearly and permanently reduce “high contribution” traffic.
– Combined with a concerning debt situation, these factors will force a complete overhaul of the economic model of air transport.

Despite this severe assessment, we think that there are ways for the industry to react radically and constructively. We will present some of them soon.

____________

¹ Boeing and Airbus
² International Air Transport Association (IATA)
³ Accuracy interviews with management of large groups
⁴ OECD, INSEE
⁵ IATA

Coming out of a crisis, but what are we heading into?

Sophie Chassat
Philosopher, partner at Wemean

The metaphor is a medical one: a crisis is the “critical” moment where everything can change one way or the other – the moment of vitality or the moment of mortality. It would seem, however, that things might not be so clear-cut and that, as Gramsci put it, a crisis instead takes the form of an “interregnum”, “consist[ing] precisely in the fact that the old is dying and the new cannot be born”. What will come out of all this? The suspense… Whatever the answer, it may well come out of left field.

This is what we’re currently feeling: a not very comfortable in-between, and we don’t know where it will lead us. The new world is not coming, and the old world is not coming back, even if, like the characters in Camus’s The Plague, we blithely or even unconsciously take up our old habits again as soon as the storm passes. Yet, at the same time, we know that something has changed, that this crisis has been, in the truest sense, an “experience”, a word whose etymology means “out of peril” (from the Latin ex-periri). Indeed, coming out of a crisis means always coming through and learning a lesson from it. The ordeal inevitably sees us transformed.

But what would be a “good” way to come out of a crisis? A way that would mean coming out on top and not crashing out? For the philosopher Georges Canguilhem, “The measure of health is a certain capacity to overcome organic crises and to establish a new physiological order, different from the old. Health is the luxury of being able to fall ill and recover.”

Overcoming a crisis is inventing a new way of life to adapt to an unprecedented situation. Indeed, health is the ability to create new ways of life, whilst illness can be seen as an inability to innovate. We must also be wary of all the semantics that suggest a return to the same or the simple conclusion of a certain state: “restarting”, “resuming”, “returning to normal”, “lifting lockdown”.

Inventing, creating… that’s what will truly and vitally take us out of the crisis. As another philosopher, Bruno Latour, put it from the very fi rst lockdown, “if we don’t take advantage of this unbelievable situation to change, it’s a waste of a crisis”. That’s why we must also see this period of coming out of a crisis as an occasion to come out of our mental bubbles and leave our prejudices behind. And let’s not forget to question the meaning of our decisions: why do we want to change? What new era do we want to head into, knowing that other crises are waiting for us? The thicker the fog, the stronger and further our headlights must shine.

____________

¹ “The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.” Antonio Gramsci, Prison notebooks (written between 1929 and 1935).

² “For the moment he wished to behave like all those others around him, who believed, or made believe, that plague can come and go without changing anything in men’s hearts.” Albert Camus, The Plague (1947).

³ Georges Canguilhem, “On the Normal and the Pathological”, in. Knowledge of Life (2008).

⁴ Le Grand Entretien, France Inter, 3 April 2020.

Considerations on public debt

Jean-Marc Daniel
French economist, Professor at ESCP Business School

By replacing corporate debt, the economic support policies linked to COVID-19 have sent public debt levels through the roof globally. According to the IMF, global public debt should increase from 83% of GDP at the end of 2019 to 100% at the end of 2021. At that time, this ratio is expected to reach 119% in France, 158% in Italy and… 264% in Japan. Yet, many of the comments brought about by this explosion are absurd.

FOUR MISCONCEPTIONS ARE OFTEN SPREAD ABOUT PUBLIC DEBT.

The first is that it constitutes a burden that one generation transfers to the next. However, as early as the 18th century, Jean-François Melon demonstrated the approximative nature of such a claim. Melon, the secretary of the famous John Law at the time when the latter was propounding his public debt monetisation policy, sought to justify himself after the policy’s failure. He gave his view on what happened in his Essai politique sur le commerce (Political essay on trade) where he declared:

“THROUGH PUBLIC DEBT, THE COUNTRY IS LENDING TO ITSELF.”

He insists on the fact that public debt does not effect a transfer from one generation to another but rather from one social group, taxpayers, to another, the holders of public securities, who receive the interest.

The second misconception is that the repayment of debt presents a threat to public finances. Some therefore suggest issuing perpetual debt, so that it will never have to be repaid. However, it just so happens that, in practice, public debt is already perpetual. Indeed, governments do little more than pay interest. Since the beginning of the 19th century, no entry has been made in a government’s budget for the repayment of its debt. Each time a loan comes to maturity, it is immediately replaced.

The third misconception about public debt is that a precipitous rise in interest rates would constitute a threat; after all, the government’s concrete and formal commitment is to pay interest. The increasing scarcity of potential lenders would generate this rise in rates and would restrict the opportunities for governments to borrow. However, every modern economy has a central bank acting as lender as a last resort. As a result, banks have no problem buying debt that they can subsequently dispose of by selling it back to central banks – and they do so without limit. The effective interest rate and the amount of debt held by private players ultimately depend on the action of the central bank. Incidentally, the status of the US central bank, the Federal Reserve, is explicitly defined in its mission:

“Maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”

Though independent, central banks now maintain very low rates with the clear aim of alleviating the cost of interest for governments. In addition, as the central bank transfers back to the government the debt interest that the latter pays to the former, the portion of public debt owned by the central bank is free, which systematically reduces the average interest rate paid by the government. The situation in Japan presents an illustrative example of this. According to the OECD, its public debt/GDP ratio stood at 226% in 2019. The Japanese government quite calmly considers that this ratio will reach 600% in 2060. Its insouciance can be attributed to the fact that its net interest costs amounted to almost zero in 2019, thanks to an ultra-accommodating monetary policy and half of public debt being owned by the country’s central bank.

Finally, the fourth misconception is that there would be a division between good debt and bad debt.

Good public debt would finance investment; bad public debt would finance operations. This division makes little sense: it is based on taking the thinking behind private debt and applying it to public debt. It assumes that public investment spending prepares for the future, whilst public operational spending sacrifices the future for the present. However, it is easy to see that the salary of a researcher, whose work will lead to technical progress and therefore more growth, is operational spending, whilst the construction of a road leading nowhere corresponds to investment spending…

Nevertheless, the idea of good and bad debt should be detailed further because, in certain conditions, it should guide fiscal policy. Incidentally, our ancestors had identified the problem.

For a long time, religious authorities considered that remunerating a loan was tantamount to usury.

Their reasoning became more refined over time, to the extent that in the 13th century, Saint Thomas Aquinas could write:

“He who lends money transfers the ownership of the money to the borrower. Hence the borrower holds the money at his own risk and is bound to pay it all back: wherefore the lender must not exact more. On the other hand he that entrusts his money to a merchant or craftsman so as to form a kind of society, does not transfer the ownership of his money to them, for it remains his, so that at his risk the merchant speculates with it, or the craftsman uses it for his craft, and consequently he may lawfully demand as something belonging to him, part of the profits derived from his money.”

The nascent political economy then distinguished between two types of loan: on the one hand, there were “commercial” loans, also known as “production loans”, which financed investments and the emergence of future wealth, creating something on which to pay interest; on the other hand, there were loans aimed at helping those in difficulty, called “consumer loans”, which follow the same line of thinking as donations and should therefore be free.

The modern materialisation of Saint Thomas Aquinas reflections leads to the following affirmation: private debt is justified when financing investment that brings a structural improvement to growth, whilst public debt is justified in response to cyclical hazards, ensuring collective solidarity with economic sectors in difficulty due to cyclical fluctuations.

European treaties are based on these principles, the “Treaty on stability, coordination and governance in particular.”

THIS TREATY STIPULATES:

The budgetary position of the general government of a Contracting Party shall be balanced or in surplus; [this] rule shall be deemed to be respected if the annual structural balance of the general government [falls within] a lower limit of a structural deficit of 0,5 % of the gross domestic product at market prices.

It confirms the distinction between a “good deficit” – the circumstantial deficit, which appears when growth is struggling and disappears when growth is sustained – and a “bad deficit” – the structural deficit, which is independent of the cycle and remains no matter the circumstances.

What is worrying today is that we are moving away from this scheme, which is not without negative consequences. The first of these consequences relates to equality between supply and demand. Any public expenditure that is not financed by a tax on private spending increases demand. If this increase lasts, it will lead to one of two situations: an external contribution, that is, a deepening trade deficit, or the opportunity for the production system to increase its prices, that is, a boost to inflation.

The second negative consequence relates to an increase in public debt generating negative expectations for private players.

First, the instinct to save in order to prepare for an uncertain financial future brought about by the accumulation of debt leads to an increase in asset prices – property bubbles might be the most obvious materialisation of this phenomenon. This is what economists call “Ricardian equivalence”.

Second, these negative expectations erode the credibility of the currency.

Countries (like Lebanon) that see their currencies disappear in favour of the dollar because of a surge in public debt are rare. Nevertheless, we are witnessing a resurgence of gold, which remains the ultimate monetary recourse in the collective unconscious, a resurgence underlined by the soaring price of this precious metal.

All this to say that it is time to put an end to the “no matter the cost”, even if the cessation of payments of the government is not on the agenda.

Inflationary risk: where should we be looking?

Hervé Goulletquer
Senior Economic Advisor, Accuracy

Let’s remember the time before the pandemic. Prices are reasonable. From the beginning of 2010 to the beginning of 2020, the average annual increase in consumer price indices, when we exclude particularly volatile items like energy and food products, reaches 1.8% in the United States and 1.1% in the eurozone. The 2% objective set by central banks is not met and even the very low rate of unemployment (at the beginning of last year, it was 3.5% in the US and 5% in Germany) seems unable to generate an acceleration, via more dynamic labour costs.

Labour market developments – deregulation and a decrease in the bargaining power of employees – may explain the majority of this result. A collective preference for saving over investment and the credibility of monetary policies are other explanations that can be put forward.

But it’s only after a COVID-19 crisis that has lasted almost a year and a half and a way out that is finally taking shape, at least in the US and Europe, that the price landscape seems to have been thrown upside down! In two months (April and May), this very same core of prices increases by 1.6% in the United States (a 10% annual rate!) and 0.7% in the eurozone (an annual rate of over 4%). Just what is going on? This price acceleration comes as somewhat of a (bad) surprise, particularly because the objective of economic policy, throughout the pandemic, has been to maintain productive capacities (companies and employees), so that activity can restart ‘like before’ when the public health conditions allow it.

So, in terms of prices, things may not be happening exactly as expected. What explanations can we give? Let’s start with three.

First, the reopening of an economy more or less “preserved” over a fairly long period requires rebalancing. Starting production again is not instantaneous, and demand during lockdown is not the same as demand during unlockdown. For supply, a raw materials index, like the S&P GSCI, increases by 65% over one year (and even 130% compared with the low point in April 2020). Similarly, the cost of sea freight increases over one year by more than 150%. As for demand, during this interim period between one economic state and another, two mechanisms of upward price distortion coexist. The goods or services that turned out to be the winners of the lockdown have still not relinquished their crowns; their prices remain dynamic. Those that were the losers can now “pick themselves back up”, or rather pick their prices back up! The two graphs below illustrate what is happening in the US.

Based on this two fold observation and at this stage of analysis, an initial conclusion emerges: the price acceleration phenomenon may very well prove temporary, as the central bankers keep telling us. The production circuit will get back up to “cruising speed”, and the concomitance of these two movements in the rise of certain retail prices is not expected to last.

US: price winners from unlockdown (4% of index)

US: price winners from lockdown (12% of index)

We must remember the mechanisms that are at the heart of forming consumer prices. There are three key points in the matter.

1. Transmission losses between the raw product prices and consumer prices are very significant, so much so that in the American case the correlation between the two series is only 10%.

2. The profile of labour costs, and especially those per unit of output (the former from which the evolution of labour productivity is subtracted), shapes, with a delay of a few quarters, the profile of consumer prices. The messages sent by the front end of this relationship are not worrying. Unemployment is still far from its pre-COVID-19 level and businesses are putting a lot of emphasis on the need to improve their efficiency.

3. Inflation expectations play a significant role in the formation of prices. Indeed, the stability of expectations is the guarantor of the stability of prices. The reasoning behind this is as follows: if all consumers start to believe that prices will accelerate, they will together precipitate purchasing decisions. The imbalance, which is most often inevitable, between a sudden increase in demand and an offer that struggles to adapt quickly leads to the phenomenon of price acceleration. This phenomenon will escalate and become permanent if labour costs follow prices. It would then be justified to talk about inflation. Let’s say that, for the time being at least, expectations have done quite well in resisting the “fuss” generated by these somewhat sharp increases in consumer prices.

China: transmission losses between production price index (PPI) and core consumer price index (CPI)

US: key role of unit labour costs in the formation of retail prices

To conclude on this second analytical point, the risk of “cyclical” inflation seems rather limited at the moment.

Finally, despite the explicit wish and will to return to normal once the pandemic is behind us, shouldn’t we question the changes that it has brought about? Let’s ask three questions:

1. How can we eliminate the divergences generated by the health crisis (countries, sectors, companies and households, employment and savings)?

2. What will be the effect of the rise in debt (public and private)?

3. How can we normalise an economic policy that is so highly accommodating?

It is precisely because these questions exist that the resolve behind current economic policy is both remaining and transforming. The best illustration of the approach can be found in the United States in the High Pressure Economy. Its ambition is threefold: to prevent a decline in potential growth, to reorientate the economy towards the future (digital, environment and education/training) and to galvanise both supply and demand. This requires an increase in public demand and an increase in transfers, with the idea that private spending will follow. At the same time, it is also necessary to ensure that sectoral and structural policies contribute to the corresponding supply side changes, higher productivity gains and more jobs, all while avoiding excessive timing differences between the respective upward shifts in demand and supply. Otherwise, there would be a risk of creating less reasonable price conditions. Further, there is no point trying to hide it: there is an element of “creative destruction”’ in the approach taken.

THREE DEVELOPMENTS ARE STARTING TO APPEAR.

1. The questioning of the triptych – movements (goods and people) / concentration (locations of production and possibly companies) / hyperconsumption – because of the constraints of sustainable development

2. The rebuilding of productive supply (air transport, tourism, automotive, etc.)

3. The matching of labour supply and demand with both labour shortages and excesses.

We have to admit that we are not facing a classic, cyclical sequence. Adjusting economic policy may not be appropriate (stimulus either poorly calibrated or ill-suited), and structural and sectoral changes may generate imbalances at the macroeconomic level; price acceleration would be an indicator of this. Of course, so far, this is all conjecture, but we have a duty to remain vigilant.

LET’S LOOK AT THE THREE CONCLUSIONS THAT WE HAVE REACHED:

The temporary is not made to last ; the cyclical sequences are not sending any particularly worrying messages in terms of prices today or in the near future; the mix, formed through economic policy initiatives and structural changes currently being set in motion, should be closely monitored because it could be a source of imbalances, including greater inflation. A certain historical reference may be worth considering: the years following the end of World War II. Indeed, this period had a need both to support the economy and to reabsorb the imbalance between an awakening civilian demand and a then very military supply. All of this forced structural and sectoral developments. But beware: even if there is a certain resonance in terms of the sequences, the issue of time is perceived differently. It was necessary to move very quickly 75 years ago, but many believe, rightly or wrongly, that time pressure is less intense today. As such, neither policy initiatives nor structural changes would be of such a magnitude and speed to generate serious imbalances, including the likes of more inflation.

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