Capital Will Become Scarcer For The Rest Of The Decade: The Economist

The trouble with the 12-month outlook, an obligation at this time of year, is that the forecasts will be wrong. Of course, they will. In financial markets, there are so many ways to err—on direction, timing, or speed of change. A year is both too long and too short, The Economist said in an analysis.

Photo Insert: Over time, capital is bound to become less abundant.

Too long, because the blistering pace of the current financial-business cycle means even a well-identified idea plays out in a matter of weeks. Too short, because deep trends may take years to become fully apparent, it added.

So let us shelve the immediate outlook and ask instead how things might change over the next decade or so. Today capital is abundant. A middle-aged global workforce has lots of savings to put to work.

Low long-term interest rates and expensive assets point to a scarcity of worthwhile ways to deploy those savings. New businesses are often ideas-based and do not need a lot of capital. It can be hard to imagine this state of affairs ending.

But over time capital is bound to become less abundant. Greater demand for it will come from three sources in particular-- economic populism; shorter supply-chains and the energy transition. This greater demand will push the cost of capital up and increase interest rates for the rest of the financially flummoxing decade.

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