The UN Secretary General, Antonio Guterres, recently warned that the world is immersed in “shocks” , which are already affecting different areas: geopolitical, energy, financial, health… This has led to an unknown scenario since the end of World War II . The world is experiencing an inflation environment that has raised rates to levels never seen in the last 40 years.Four decades of economic stability and moderation, growth and prosperity, in which global poverty has fallen on a global scale, and in which a new middle class has emerged, especially in Latin America and Asia, especially in China. A period in which there have been few and short crises (with the exception of the financial one), and all this in a scenario of low inflation.
However, the latest “shocks”, triggered by the COVID pandemic and the War in Ukraine, have placed us on a new game board , which rearranges the pieces and threatens the “status quo” of which until now We have enjoyed putting new challenges before the states, which will be key to successfully emerging from a situation that has put global stability in check.
We are, therefore, facing a new environment of great volatility , in which it is impossible to predict with certainty how the “shocks” will be resolved, and which, inevitably, make us look back, to previous periods of history. Their resolution will largely depend on the application of sound policies. The key to overcoming the situation and even coming out stronger, or, on the contrary, further enlarging the open cracks. Alicia Coronil, Chief Economist at Singularbank, has summarized these challenges that the world currently faces in five trends (“5D “): Digitization, Decarbonization, Demography, Deconfiguration of the International Order and Deglobalization . “All these “D’s” are intertwined with each other. It is a circle in which they feed off each other. The vital thing is to ensure that in this world of volatility that we are beginning to enter, we manage to have leadership and consensus that prevent us from going to an even more multipolar and fragmented world, and that makes them more exacerbated and that, in the end, give give rise to populist and protectionist overtones”, indicates Coronil. Some trends that the expert explains below:
Digitization. It is a trend that, together with decarbonization, was already there, but that the pandemic and the war have accelerated and that, at a time like the present, is more necessary than ever. Digitization, together with robotization, has the effect of boosting productivity, something that needs to be promoted, as well as promoting the efficiency of processes, precisely to reduce inflationary tensions that we have at the moment. Not only can central banks play a role in alleviating these price tensions that come from the supply side, but there are other mechanisms to stop them.
Decarbonization. The climate crisis has made us aware of the need to decarbonize the economy, but the Ukraine War has reaffirmed, especially Europeans, the belief that they need greater independence from fossil supplies, which generally come from countries that are autocracies, whose political systems are contrary to the liberal order. The pandemic accelerated the need to diversify the productive fabric, and the energy transition is precisely one of the levers. However, the current scenario triggered by the armed conflict has placed us in a new scenario, in which this decarbonization is not going to be easy, nor is it cheap. It will be a very expensive process that will take time. In this sense, investment in renewable energies will be intensified, but it will also increase its role in the different transition plans for other energies, such as nuclear. Countries such as the United States, France, China or Japan are committed to the construction of new generation nuclear power plants. In short, we have realized that we need energy security.
deglobalization. It is another phenomenon that had been accelerating during the pandemic and that the Ukraine War has consolidated. Advanced economies have realized that they need to recover certain supplies and configure value chains in such a way that they are in closer and more diversified places so as not to depend exclusively on a single economic region. In this sense, digitization is essential to attract these value chains. But for this, in addition to good processes based on technology, we also need talent, a good regulatory framework, legal certainty and to build a transition that allows us to have a very competitive energy on a global scale. Firms have to grow in size to create national champions, especially in areas of high innovation. Europe fell asleep against the United States and China, that have led entrepreneurial initiatives, but, fortunately, the latest data shows that an awakening is taking place with regulatory changes, such as those promoted in France, the Nordic countries or Portugal, with measures to attract entrepreneurs and foreign investment. It will also be necessary to rethink the agri-food sector with better water management, with more innovation and “agribusiness”.
Deconfiguration of the established order. This trend is clearly seen in the case of the invasion of Ukraine, but it was already evident during the health crisis. And we are witnessing a destabilization of the world order that emerged after the Second World War. Proof of this has been the diplomacy of vaccines. China and Russia have used them as an instrument to modulate geoeconomic balances, a trend that has intensified with the war. This shows the will of these two nations to create a new order, far removed from the liberal vision of the economy. Likewise, and beyond what occurs in Ukraine, climate change is producing a new phenomenon, the melting of the Arctic, giving rise to new trade routes, the control of which will be essential. Thus, a new reconfiguration has arisen, in which the G7 countries have realized the importance of defending this order. Of course, it will have to be rethought and improved, because in some points it has become obsolete, once again giving prominence to regions that are going to be key in the energy transition and food security, such as Africa and Latin America, where Europe and the US have ceded weight in favor of Russia and China. They need to gain influence again.
Demography. The aging of the population is a phenomenon that does not only affect Europe. China, for example, is also seeing a loss of workforce, something that has important price implications. Part of the human capital can be covered with digitization and robotization processes, but also, in the case of countries with increasingly aging population pyramids, it brings with it greater socialization of certain services and the need for talent to be present. The loss of the active population in the United States, Germany or the United Kingdom is translating into salary pressures, a manifestation that will arrive in Spain with some delay, as the “baby boomer generation” reaches retirement age. Then you will start to see these price implications, consumption habits or how society is going to be managed from the point of view of social services and the configuration of cities. In short, the welfare state will have to be rethought to make it viable and adapted to the new characteristics of society.