It’s hard to be optimistic for 2023, especially since global inflation and supply chain disruption are likely to persist well into next year.
The global economy is reeling from three major shocks: the global trade war, the Covid-19 pandemic, and the war in Ukraine, which are all features of the most economically unstable period in world history since World War II.
The ripple effect of the Russia-Ukraine conflict, tighter US monetary policy, an economic slowdown in China, and other political and geopolitical upheavals are expected to weigh heavy on the economy next year, slowing global growth to a mere 1.6 per cent.
Other factors to watch in 2023 are the impact of climate change and mitigation strategies, developments in US-Chinese relations, and the political impact of global inflation.
All these factors are reinforcing a tendency towards further deglobalisation, which denotes a less connected world, characterised by powerful nation-states, local solutions and border controls in contrast with global institutions, treaties and free movement of goods, labour and capital. The symptoms of deglobalisation are Brexit, Trumpism, the war in Ukraine, problems with supply chains, the global energy crisis, and the decline in foreign direct investment.
The Covid-19 pandemic has also fuelled calls from rich countries for an overhaul of global production and trade, which led to greater protectionism. Despite the doom and gloom, there is a bright side to deglobalisation. Over-reliance on global supply chains for essential goods and energy will be avoided, thus affording more opportunities for local market successes.
However, a fragmented global economy, shaped mainly by competition from the major powers, will harm everyone, since the development of energy and technology is essential for general development and requires global solutions.
Fragmentation also impacts the operations of multinational companies, increases operational complexity, and weakens incentives for companies to invest.
Economists warn that the looming spectre of deglobalisation, which threatens cross-border trade and investment, should worry business leaders, workers and policymakers in developing economies or smaller countries.
It also jeopardises the world’s ability to work together in facing common threats, including health and environmental challenges. Since its emergence, globalisation has had numerous effects — both positive and negative — on business and society. While it increased the flow of goods, services, capital, people and ideas across international boundaries, it also increased competition, leading to disproportionate growth between and within nations, and caused environmental concerns.
True, we should address problems related to globalisation, but moving toward deglobalisation or decoupling may be a bigger mistake that may threaten world growth and peace.
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