Tooze mainly uses this concept to describe the period following the 2008 financial crisis, when the world was faced with a host of challenges:

• Financial crisis: the 2008 crisis and subsequent recession were at the heart of the polycrisis as they severely disrupted the global economy.

• European debt crisis: this crisis started in 2009 with countries such as Greece, Ireland, Portugal and Spain experiencing enormous debt problems and financial instability.

• Geopolitical tensions: these have risen sharply, with conflicts in, for example, Ukraine and the Middle East, and mounting frictions between great powers.

• Migration crisis: the flow of migrants and refugees into Europe created another dimension of the polycrisis, with challenges in terms of humanitarian aid, social cohesion and political turmoil.

• Climate change: the consequences of climate change and the (lack of) response to it pose serious threats to the planet and global economy.

The concept of polycrisis stresses the interconnectedness of crises and how they reinforce each other. Combating a single crisis is difficult enough, but dealing with multiple, simultaneous crises poses an extraordinary challenge for governments, companies and society as a whole.

Far from unique

Tooze sometimes makes it seem as though this multitude of interlinked challenges is unique to the world, but this is certainly not the case. For example, books were published recently on Germany in the year 1923. If there ever was a polycrisis somewhere and in a certain period, it was there and at that point in time: the speed and multitude of interacting crises resulted in widespread confusion and uncertainty.

In the space of one year, Belgium and France invaded the Ruhr area, inflation turned into hyperinflation, major social unrest erupted, politics was in turmoil, separatist movements seized their opportunity and Hitler initiated a failed coup.

According to historian Charles Emmerson, these events teach us a few lessons:

“Crisis breeds crisis; democracy is hard work; scapegoating needs to be addressed early; norms, once broken, are hard to repair; the socio-economic effects of inflation can be deadly. And, when a large portion of the population questions the fundamental legitimacy of a regime, that regime is inevitably at the mercy of events.”

Examples of this are clearly visible nowadays:

• The financial crisis of 2008/2009 partly laid the foundation for far-reaching polarisation, doubts about the economic model of the US/the West, the rise of Trump, etc. These developments, in turn, helped give Putin the idea that he could invade Ukraine, with last year’s further escalation of the war triggering another inflationary shock, and so on.

• The storming of the Capitol was partly due to Trump turning his supporters against moderate politicians.

• Political developments in the US, India, Hungary and Turkey, among other countries, reflect that democracy can never be taken for granted.

• In Argentina and Venezuela, for example, massive inflation is partly responsible for the fact that 40% and half of the population, respectively, live in poverty, while the societies of these countries have become disrupted.

• The most urgent macro question investors and companies are asking themselves is whether the global economy has landed softly with ongoing growth and a (persistent) decline in inflation, or whether we will experience a crash with potentially deep recessions in the West.

The answer to this question largely depends on the effects of monetary policies of major central banks.

However, the economic outlook also depends on the interplay of problems and challenges with which policymakers, companies and the rest of society are grappling, including geopolitical tensions, impending brakes on free trade, climate change, the costs of the energy transition, populism and political polarisation.

A rude awakening

Governments are now in for a rude awakening in at least two areas:

In recent years, ‘mainstream’ politicians have been fully committed to the energy transition and addressing climate change. People were constantly told the green transition would be accompanied by jobs and wealth creation. However, the transition costs were often conveniently ignored: the switch to green energy will initially cost vast amounts of money and people who lose their jobs in traditional, polluting sectors will not immediately be ready for a job in the ‘green’ sectors. In this context, Gideon Rachman aptly quoted an anonymous activist: “They talk about the end of the world. We are talking about the end of the week.” This has also dawned on politicians, because climate and energy targets worldwide have been adjusted downwards.

Free trade is another area in which policymakers are adjusting their policies. For many decades, especially the positive aspects of free trade have been emphasised and overestimated, the costs of tariffs and so on have regularly been overestimated, while multinationals have been able to play countries and workers off against each other.

At this point, steps are being taken to revise the assumptions of free trade models – eg the unrealistic assumption that employees who are dismissed in ‘old’ sectors can easily be employed elsewhere in promising sectors under the same (or even higher) wages. In addition, attempts are being made to focus more on externalities, such as environmental damage.

Darkening skies

The aforementioned developments were reflected in strikes in the US automotive sector, for example. The situation of employees in this sector had generally improved only marginally in real terms and they fear Chinese EV competition (in any event, building an EV will require less labour than building a car with a combustion engine). Companies, on the other hand, have engaged in large-scale share buybacks, have made mega profits and the situation of top executives has improved by 40% in the last few years. It would not be surprising if a shift from profits to wages materialised, partly due to political pressure.

Moreover, the US and Europe are taking more initiatives to raise corporate taxes in order to pay for social services, defence, and so on. Governments will have to seek new/other sources of revenue, as financing costs have increased due to the sharp rise in interest rates. As a result, companies are being hit from several sides: higher wage costs and a higher tax burden. At the same time, global economic growth will probably remain fairly low. Furthermore, even if they wanted to, central banks are barely able to provide stimulus. Indeed, despite the downtrend, inflation is still high in many territories. The factors that exert downward pressure on growth will ensure the economic pie will not grow, or it will grow far less rapidly than many countries were used to.

As a result, fiscal policy is increasingly becoming a zero-sum policy, certainly because the easy way out – additional borrowing – entails more and more drawbacks (in the form of higher interest charges and crowding out effects). This will continue to lead to social tensions and considerable political struggle over budgets and it will produce economically suboptimal outcomes. After all, the pockets of society that are becoming more dependent on government money are increasing in many countries and political parties will be more likely to listen to these groups for electoral gain. This will ultimately result in higher taxes for other groups – such as companies and the wealthy – or on imports. This will make entrepreneurship, domestic investment and trading less attractive, which means the economic pie will grow even less.

In short, the political, social and economic climate for shares does not look particularly favourable. However, the situation is not hopeless, because, in the long-term, productivity growth will increase considerably as a result of AI and robotisation. Until then, however, we expect more downward pressure on asset prices.