A World That Seems a Lot Smaller

Over the past week or so I 've been ploughing my way through the Barclay's Equity Gilt Study 2008. This Study is produced annually and presents a detailed discussion of the long-term returns available on financial assets. I was only really interested in the first two chapters on the economic background.

The key message relates to natural resources which, due to an increasing population and improving living standards, are being depleted at an accelerating pace. Looking ahead it is simply not possible for developing nations to grow to the point where their per capita use of resources mirrors that of the developed world. For example if China and India were to match US oil per capita usage this would triple global oil consumption to some 24ombpd. Since it seems unlikely that we will ever be able to produce much more than the current rate of 85mbpd something very big has to give. Take copper: For Chinese and Indian copper consumption to rise to the average of the Asian developed countries then global copper output would also need to go up threefold.
Under any growth scenario therefore huge additional investment into resource and energy supply will be needed; all the "easy" stuff has gone. Resources are finite, and increasingly harder to extract and so this has inevitably lead to the resource price inflation now being experienced.

The rather worrying conclusion that the current low inflationary environment we have enjoyed in recent years is about to change. And there isn't anything we can do about it....