Bloomberg Economics has lowered its forecast for global GDP this year by $1.6 trillion. The war in Ukraine, inflation and China’s zero policy on new cases of Covid19 are the main factors behind this downward correction.
But what if this decline is just a first step into an era of scarcity fueled by the end of globalization? The question is asked and answered by Bloomberg experts, who stress that “the world is becoming increasingly geopolitically divided.”
Economists created a simulation of what the world might look like in the future, marked by the divide between democratic and autocratic countries, and concluded that this would result in a poorer and less productive world economy, a “déjà vu ‘ the time when China had not yet joined the World Trade Organization (WTO). In addition to the significant reduction in trading, everything points to more volatile and higher inflation.
“Fragmentation is here to stay,” warns Robert Koopmanm, quoted by Bloomberg. The WTO chief economist expects the world to enter a new era with a “reorganized globalization” that will come at a price: “We will no longer be able to rely on lowcost, marginalcost production as intensively as before,” he warns.
Over the past three decades, the global economy has benefited from the ability to produce more and more products at lower prices, a factor that propelled the world into the “Age of Plenty” marked by the breaking down of barriers between countries and the emergence of Skilled labor was driven East and Chinese.
“However, over the last four years there has been an increasing number of obstacles: [entre países] multiplied during the USChina trade war, the pandemic brought lockdowns and the war sanctions and export controls, which made it difficult to get goods delivered,” Bloomberg warns.
According to the US authorities, around 7 percent of global gross domestic product, or around six billion dollars, is currently traded between democratic and autocratic states. To simulate a major collapse scenario, Bloomberg envisioned that between these two blocs, tariffs of 25% would be imposed on that total, which is the highest tariffs ever imposed between the US and China and a combined percentage in Situations of extreme tension and sanctions.
The result would be a drop in world trade of around 20%, taking the world economy back to 1990 when China was not in the WTO. “It would be a painful change,” Bloomberg Economics points out.
In the long run, “deglobalization” or “reorganization of globalization” at 1990 levels would make the world 3.5% poorer compared to the current scenario and 15% poorer compared to an idyllic scenario of strong trade relations between states, autocratic and democratic .
For Bloomberg Economics, the economy is therefore changing, and even if this extreme scenario does not mean an economic cold war between dictatorships and democracies, economists warn that “you must prepare for an economic slowdown, inflation and greater volatility”.