As expected,
leaders struck a cautiously upbeat tone at The World Economic Forum in Davos this week.
China’s recent reopening, the way Europe has adapted to the war in Ukraine and the US’s green investment boom have all brightened the outlook for the global economy. Gita Gopinath, deputy managing director of the IMF, even suggested the fund would upgrade its forecasts.
But it isn’t all rose-tinted: 2023 will still be a “tough year”, Gopinath warned, noting that central banks should keep raising rates until inflation is under control.
It was much the same message when UK inflation data was posted this week.
The rate of inflation dropped to 10.5 per cent in December last year, according to figures from ONS – the second month in a row that it has slowed.
But core inflation was stable at 6.3 per cent and economists expect the BoE to continue raising interest rates this year.
Labouring in a hot market
The central bank will be keeping a close eye on the UK’s tight labour market – and one of the forces driving that is the loss of free movement of labour with the EU.
Two think-tanks put a figure on just how much Brexit has affected the UK workforce, estimating that there is a
shortfall of more than 300,000 workers. The end of freedom of movement is “contributing significantly” to labour shortages in lower-skilled sectors, and the longer-term effects on the labour market will be “profound”, researchers say.
A second factor exacerbating shortages is the number of older workers who, since the pandemic, have left the workforce - a phenomenon dubbed as “the great retirement”.
Now
businesses are considering ways to attract and retain experienced professionals – for example offering flexible working hours, healthcare support and consultancy work.
All this considered, it is perhaps no surprise that wages were on the up at the end of last year. Figures show that
average salaries in the three months to November were 6.4 per cent higher than in 2021.
This brings two problems. Wage growth was stronger in the private sector, which will aggravate the dispute between government and striking public sector workers this winter. It will also maintain pressure on the BoE to raise rates when they meet on 2 February.
One
area to watch is the T&Cs of workers’ contracts, writes employment columnist Sarah O’Connor. The use of small print – like non-compete clauses – have spread beyond the US and research suggests they can stifle pay and labour mobility.
“Time to get the magnifying glass out: the economics of small print could have a big impact on how we understand the world today,” she writes.
Risk management and supply chains
Covid-19, including most recently in China, the Russian war in Ukraine, inflation, increasing interest rates and geopolitics have all disrupted supply chains over the last few years. Now companies are looking at their supply chains differently,
focusing on resilience over cost.
The big read this week is informative for any directors interested in supply chains and risk. For all its success, Apple has a weakness:
its dependence on China for manufacturing. More than 95 per cent of iPhones, AirPods, Macs and iPads are made in China, and it was chief executive Tim Cook who, when he was chief operating officer, spearheaded the move away from the US.
Even as relations between the US and China turned frosty, Apple continued to embed itself in the country. Now investors and politicians are pressuring the tech giant to diversify.
But with such complex supply chains,
it’s questionable whether this is even possible. “Apple would have too many difficulties to find the human resources and infrastructure that is parallel — or even close — to the scale provided in China,” one expert said.
Get ready for a tumultuous AGM season
Last week we said the stage was set for a proxy battle at Disney and now it is taking shape. In his push to get on the board of the entertainment giant, activist investor Nelson Peltz devoted a 35-page deck to slating its strategy.
Peltz took particular umbridge with the $71bn acquisition of Fox, arguing it was too expensive, increased Disney’s debt and stopped the company paying investors a dividend.
In the UK, investors have been trying to get ahead of possible clashes this week.
The Investor Forum wrote to FTSE 100 chairs asking for a new group to be created with boards. It wants talks to take place on topics including remuneration, board composition and the role of proxy agents before the AGM season.
And as Nicolai Tangen, the chief executive of Norges Bank Investment Management, headed off to Davos this week, he
warned that boards need to “sharpen up”. Executive pay came up again as an area of concern, as did CEO-chair roles, board composition and climate risk.
“ESG is not politics,” he wrote. “It is common sense. In an uninhabitable world, the value of our fund is zero.”
Finally, as companies in the US and Europe face new rules and guidelines around climate reporting,
auditors and accountants are starting to get pulled into a space that was previously the reserve of sustainability specialists.
“The governance and control environment needs to quickly mature to get into alignment with traditional corporate reporting,” said Kristen Sullivan, US head of sustainability and ESG services at the accounting firm Deloitte.
