Globalisation facing a serious trust deficit
Globalisation, one of the pillars of the modern economic system, is facing serious trust deficit as geopolitical storms lash the world, pushing the year 2019 into a maelstrom of uncertainties, according to a research paper tabled last week at the Astana Economic Forum (AEF), known as the Asian Davos.
Political commitment to globalisation in developed countries is weakening while the world is witnessing a transformation of the capitalistic model of development, the paper said.
"In this context, trade conflicts have significant potential to escalate into trade wars with consequent disruptions in global production and supply chains when international organisations and arbitration bodies do not have sufficient weight to resolve trade and political disputes. As a result, we see tensions between former partners and a return to gunboat diplomacy in trade relations," said the paper, which listed out 10 risks that would define the world economy.
"The current juncture is delicate for the global economy. A year ago, activity was accelerating in almost all regions of the world. However, we have witnessed a slowdown since the second half of 2018, reflecting rising trade tensions and a tightening of financial conditions. We are expecting a rebound in late 2019, but it seems precarious and vulnerable to downside risks," Christine Lagarde, managing director of the International Monetary Fund, said in a special note in the paper.
These risks include country-related uncertainties, such as Brexit, broader tension around trade and unease in global financial markets, said Lagarde, who also addressed the forum in the Kazakhstan capital of Nur-Sultan, formerly known as Astana.
The AEF paper lamented the plunging influence of international institutions. For the first time in the post-war period, the US changed its economic policy to a domestically-oriented one, breaking a number of trade partnership agreements. At the same time, a debate on the integrity of the single European market is raging in the continent, the paper pointed out. These developments impact globalisation by giving rise to new regional blocs whose partners are only guided by their own interests. Such neoprotectionism is creating barriers not only in manufacturing and agriculture, but also in the digital economy and innovative industries.
Growing digitisation and the current transition to a new industrial revolution are provoking a new technological race that would reduce employment, leading to more income inequality, the paper warned. Such fragmentation of the common technology market would also create both market risks and risks associated with information and cyber security breaches.
Discussing the risks of new financial bubbles, the paper's authors - from Kazakhstan's Institute of Economic Research - said emerging markets are experiencing difficulties due to rising interest rates in the US. Despite the stabilisation of energy prices, currencies of an increasing number of developing countries are becoming cheaper amid fears that their economies will not be able to cope with the increase in the cost of borrowing in the US.
An increasing influence of China is another risk factor. At a time when Washington lacks a coherent policy, Beijing has put in place an effective global trade and investment strategy, by using its technology companies to promote state interests. Consequently, trade relations among Asian countries are shifting from the US to China, which is rapidly promoting the Belt and Road initiative that is capable of bringing the annual trade turnover between the Asian giant and the 65 Silk Route countries to $2.5 trillion. Though the Silk Road may become a game-changer in Asia, there are a number of challenges in implementing the project.