Scenario planning needs to focus on very different potential outcomes
Last week saw the launch of the European Union’s ‘Clean Industrial Deal’. It is a very welcome, if overdue, confirmation that policies need to change to avert European deindustrialisation. As the chart suggests:
- Europe’s chemical industry is facing an existential crisis as a result of Russia’s invasion of Ukraine
- Natural gas prices are now 3.9x US levels, while Europe’s ageing population means demand is weakening
- Restructuring is therefore essential, but will not be enough on its own to turn things around
- New business models are needed that focus on becoming demand-led and service-based
DEFENCE IS NOW BECOMING A KEY PRIORITY FOR EUROPE
Health and defence as shares of total spend
The war in Ukraine has also confirmed that the ‘peace dividend’ created by the fall of the Berlin Wall in 1989 has now gone:
- Defence spending fell dramatically as a percentage of GDP, as the IFS chart for the UK shows
- Instead, social spend on areas like health and education was able to surge
- But those days are now gone, with military risks increasing around the world
- It is now clear that the US is unwilling to backstop Europe’s defence as in the past
Already we are seeing governments start to announce spend increases. They are mostly targeting 2.5% of GDP. But with Russia essentially running a wartime economy, this can only be a first step.
Poland, a front-line state, is already spending 5% of GDP on defence this year. Other European countries will have to follow suit. Last week, President Trump suggested “4% or 5% would be appropriate”.
As NATO secretary-general, Mark Rutte, has warned in typically blunt Dutch fashion, NATO countries need to:
“Raise defense spending or start learning Russian”
CONSUMER SPENDING PATTERNS ARE ALREADY CHANGING
People refocus on Safety and security in more uncertain times
This change is going to be very hard for younger people. A key feature of the BabyBoomer SuperCycle was the concept developed by Thomas Friedman of the New York Times in 1996 that:
“No two countries that both have a McDonald’s have ever fought a war against each other….people in McDonald’s countries don’t like to fight wars; they like to wait in line for burgers.”
But today, we are back in the pre-SuperCycle world. Ukraine and Russia have now been at war for 3 years, despite McDonalds having opened in Russia in 1990 and in Ukraine in 1997.
And so spending patterns are changing, as the chart based on Alexander Maslow’s 1943 research highlights.
The key issue is that war creates uncertainty. And so people naturally prioritise safety and security.
6 KEY RULES FOR SUCCESS IN TODAY’S WORLD OF TARIFF AND MILITARY WARS
The new Clean Deal is, of course, just a start. Really major change lies ahead.
2025 is not 1989. But in many important ways, we are ‘Going Back to the Future’. 6 key Rules will likely identify future Winners from potential Losers, as the chart suggests.
It confirms that the Rules for doing business are changing in today’s New Normal world of tariffs and military conflicts.