Other
Is (De)globalization Ahead?
- Global trade and value chains are projected to retreat from hyperglobalization trends, characterized by structural shifts such as a decline in trade buoyancy, a halt in global value chain expansion, and a 15-percentage-point drop in China's export-to-GDP ratio since pre-global financial crisis peaks.
- The world economy is expected to fragment into three regional blocs centered on North America, Europe, and China/East Asia, driven by geopolitical polarization between U.S. and Chinese spheres that will force nations to choose economic alignments.
- Significant decoupling or total disintegration of the world economy is not anticipated; instead, a "happy medium" is likely where countries pursue self-reliance and shift demand toward non-traded services while maintaining trade levels above pre-2008 trend lines.
- Future macroeconomic conditions include higher inflation in coming years relative to pre-pandemic levels due to supply chain reconfigurations and a potential slowdown in productivity growth and secular stagnation exacerbated by deglobalization.
- Capital flows face specific shifts, including a dramatic slowdown in Chinese FDI to the United States and increased investment within nations by major reserve holders following the freezing of Russian assets, while Chinese capital continues to flow to Asia via the "Belt and Road" initiative.
- Economic outcomes regarding growth, inflation, and productivity will be determined 95% by domestic policy, with future productivity gains contingent on labor-augmenting technologies rather than labor-replacing ones.
- Risks include the potential for an "uglier form of globalization" driven by economic nationalism and geopolitical concerns, as well as domestic consequences such as industrial concentration, higher prices, corruption, and weak real wage growth despite overall poverty reduction from past globalization.
- The conflict between the U.S. and China is expected to fundamentally alter the global economic game, preventing expectations or planning for previous levels of economic integration for at least several years.