After a couple of decades of globalisation and more than a decade of very low inflation and interest rates, we were suddenly pulled back into a world of more volatility, greater macroeconomic uncertainty, and geopolitical tension, alongside accelerating digitalisation and technological innovation. There have of course been major shocks in the past decade too, such as COVID-19 in 2020, but we had grown used to central banks easing such blows with quick and massive monetary stimuli. This is less likely to happen in a similar manner or magnitude going forward, given commitments to unwind quantitative easing programmes. Our NOYM reports in 2023 have touched upon all of these areas.
Re-acquainting ourselves with inflation
In our January NOYM The return of inflation, we described what inflation is, how it works, how it is measured, why it is considered harmful for economies, and how central banks can fight it. We described how the 2022 inflation surge was driven by spikes in energy and food prices, and we made comparisons with the two major oil supply shocks of the 1970s, which at the time made inflation soar and remain elevated until the early 1990s. We highlighted some reasons why policy interest rates could be a less than ideal tool for lowering inflation triggered by the root causes that we have seen this time. We also note with interest that inflation has proven quite sticky in 2023, despite a cooling economy and multiple central bank rate hikes.
Interest rate risk no longer a non-issue for corporates
In our March NOYM The financial flak vest, we followed up from our 2019 NOYM The financial life jacket. Our play on that title highlighted the increased need for protection and more volatile corporate funding environment with higher interest rates and greater risk aversion among bond investors. We also explored leverage in the Nordic region, noting that Nordic large corporates now actually have lower leverage than their 15-year historical average. Leverage challenges are more concentrated to certain corporate segments, such as real estate, and there could be refinancing challenges owing to the big Nordic corporate bond volumes maturing in the next five years, since more than half is sub-investment grade.
Cybercrime remains on the rise
Revisiting another topic, our May NOYM Cybersecurity II explores how our ever-increasing online activity leads criminals to migrate online as well. We are often not as vigilant when transacting online as we are offline, as it is newer for us, and safe practices and solutions need to be established. The Nordic countries are vulnerable on a societal level, being early adopters of new technology and highly digitalised, including for interacting with authorities and for financial transactions. We give examples of how cyber attacks can cause problems and damage, and how corporates should approach cybersecurity on a proactive and common sense basis.
Financial targets in more turbulent times
We have worked with financial targets for corporates as a theme for over ten years and conducted an in-depth quantitative study of their merits in a 2019 NOYM report. Keen to learn how our findings may have evolved since then, and taking a new analytical approach, we released a new NOYM called Crisis targets in September. We reviewed how the use of targets by listed Nordic large corporates has evolved since 2007, how targets have changed, and how many companies have succeeded in reaching their targets. Our new analysis explores if the use of targets affects a company's value or the volatility of its valuation multiples and how close revenue and EBITDA outcomes are to consensus forecasts.
Generative AI: Should we worry for our jobs (or for our lives)?
Since the launch of OpenAI's ChatGPT large language model (LLM) with a chat prompt in November 2022, AI has seen a new global hype. In our November 2023 NOYM report, Generative AI, we describe what LLMs are, what has made them so capable, and what they can and cannot do. We offer a simple analysis of how generative AI could affect Scandinavian labour markets, and explore potential existential risks today, as well as more theoretical long-term risks such as the evolution of a superintelligence potentially hostile to humans.
