Fast forward to a new globalisation
This week’s IMF World Economic Outlook reported that the global economic outlook over the next several years is as weak as it has been for a few decades. But the global economy is showing resilience against a range of headwinds and shocks, notably higher interest rates. And global growth is expected to pick up gradually from next year, in both advanced economies and emerging markets.
There are risks ahead, particularly relating to the impact of higher rates on the financial sector. The IMF Chief Economist noted that ‘We are therefore entering a tricky phase during which economic growth remains lackluster by historical standards, financial risks have risen, yet inflation has not yet decisively turned the corner’. Regular readers will know my view that this context will constrain further increases in rates, and that policy-makers will tolerate above target inflation for longer.
Beyond this near-term outlook, my key takeaway from the IMF reports (as well as from the WTO and others) is the speed and materiality of the structural changes to globalisation. Regime change is happening quickly.
Global trade dynamics
The IMF forecasts world export growth to average 3-3.5% from 2024 on, after ~2.5% in 2023, broadly in line with world GDP growth. World trade is not the global growth engine it was over much of the past few decades, but it is not retreating.
The WTO Trade Outlook, released last week, also reinforces the claim that global trade flows are changing rather than unwinding. Although merchandise trade volume growth is moderating after the Covid boom, world trade/GDP is expected to hold steady.
But there are significant changes underway in the nature of trade flows. There is greater corporate interest in reshoring activity; and industrial policy initiatives such as the Inflation Reduction Act are explicitly aimed at building domestic capacity and reducing exposure to global supply chains. And geopolitical fragmentation of some trade flows is already underway, as discussed in previous notes. Recent data, for example, shows large geopolitically-motivated shifts in semiconductor manufacturing equipment exports to China. The direction of travel is clear.
More positively, there are emerging growth opportunities in globalisation. The WTO reports that growth in digitally-delivered exports of services has been very strong over the past several years, increasing by >35% since 2019. Strong growth is expected to be sustained, although digital exports of services will also be subject to growing geopolitical alignment/friend-shoring pressures over time. This matters: these services account for ~13% of total world trade.
The rest of the note is available at: https://davidskilling.substack.com/p/fast-forward-to-a-new-globalisation