The world has not seen a serious recession in a while, says Saugata Saha, President at S&P

Saugata Saha, 46, is among the youngest vertical heads at S&P, the global financial data analytics conglomerate. Joining the group in 2014 from McKinsey & Company, Saha was elevated to President of Global Commodity Insights in January last year. During his recent visit to India, the Kolkata boy spoke to BT on a wide range of issues from the prospect of a global economic slowdown to the outlook for commodities and energy transition. Edited excerpts:

BT: This is a significant geopolitical timeframe where global supply chains have either been disrupted or even collapsed. So, what’s your forecast in the near and medium term for the commodity market?

SS: These are unprecedented times. We are indeed living in a situation where there are some very interesting geopolitical events happening. There are inflationary pressures across the world. There’s a recessionary outlook in some parts. The labour markets in some ways have [been] severely disrupted in many parts, and then there are supply chain disruptions. There are some mitigating factors like the threat of a recession. If that happens, that becomes a bit of a relief valve on commodity prices. But supply chain disruptions and geopolitical events, and also in certain parts, higher demand for certain commodity classes, will keep prices high. So, our outlook is that commodity prices will remain elevated in the foreseeable future.

BT: Countries like India are giving priority to provisioning staple food grains like wheat for their populations. Will this aggravate the challenge?

SS: I would think about it in two broad buckets—energy and non-energy: both are equally important. There are going to be three pieces on the energy front—energy security, energy transition and energy affordability, which are at loggerheads with each other. But that’s how it’s going to be. On everything else, you will continue to see two things—geopolitics, and climate and weather patterns causing dislocations. But you’ll also see relief valves in terms of policymakers ensuring that prices stay in check.

BT: Central bankers globally have adopted a hawkish stance on monetary policy. Is a global recession inevitable?

SS: Our economists have forecast somewhere around a 40-50 per cent chance of a recession, that is, a technical recession. But what eventually matters is how long it lasts, how deep it runs, and how much time it takes to recover from it. What we’ve also seen is that recessions tend to impact different geographies differently. And their impact on different population groups varies even within one geography. Look at the short recession that happened in 2020 with the onset of Covid-19. Some parts of the economy and population recovered a lot sooner than others, depending on whether you were a white-collar worker, a blue-collar worker or the segment you were working in. So, the outlook is going to be very distributed. We haven’t had a serious recession globally in a while.

BT: In the backdrop of this volatility in energy prices and shortage of semiconductor chips, is there a need to re-engineer the global supply chain now?

SS: You’re seeing a lot of that already happening. Supply chains are becoming not just about the lowest cost option, but the lowest long-term and reliable cost option. A lot of supply chain components are, therefore, moving borders and geographies. One of the things we do in our Commodity Insights business is track production outlooks to provide demand and supply forecasts. We don’t produce demand forecasts for chips. But we do a lot of the forecast around how the energy transition is going to happen. For example, globally, China is the predominant supplier of solar panels, right from silica sand up to the finished products. Today, most major economies, including India and the US, are trying to indigenise their supply chains.

BT: How is this shift leading you to re-examine your taxonomy to reorient strategy?

SS: When I came to lead the business, I quickly realised that the biggest opportunity lay in energy transition. Now, when I talk about energy transition, that doesn’t mean that oil or LNG will go away. Our forecasts say that usage of oil globally won’t peak till about 2039-40. And even after that, it won’t fall off the cliff but taper off slowly. Meanwhile, there will be new forms of energy coming about. Data, research and analysis around those new forms represent a huge opportunity.

BT: So, what is the future of oil?

SS: What will change is the mix in the use of oil. Oil as a transportation fuel will shrink over time, but there are plenty of other use cases for oil and gas that will grow. One, for example, is the whole use of plastics. On a relative basis, electric vehicles need a lot of plastics. Petrochemicals will continue to be a fast-growing area. Fertilisers are another one. Now, there are a lot of unknowns in this and these forecasts do move around plus-minus two-three years, depending on what’s happening in the world. With the war in Ukraine, a lot of countries have delayed some of their plans to shut down or convert coal-fired plants to gas-fired plants. But that tapering off of oil has to happen.

BT: How important is the role of technology in this transition?

SS: Pardon the pun, but energy transition will be fuelled by data and technology because it involves some very complex decisions. And what will enable decision-makers to make good decisions is data. There’s so much data, we need some advanced technologies to be able to sift through all of that and come up with insights.

BT: As Asian countries such as India, China, Indonesia and Vietnam emerge as the new drivers of the global economy, what will be their role in this transition?

SS: Right now, countries like India in particular, and even China to a great extent, are in a build mode. As their populations get wealthier, they will need more forms of energy. Policymakers in India have a very thoughtful approach where they are promoting both new forms of energy and, at the same time, there’s a forward-thinking new bill in your Parliament that promotes reducing per capita energy usage. So, in markets like India, you’ll see a leapfrogging of a generation of technology to get to something more renewable and cleaner.

@manishpant22