Geopolitical and geoeconomic fragmentation
▶ The IMF conference on geo-economic fragmentation has emphasized that the possibility of a long-standing downturn in global trade and openness looms large on the horizon.
▶ First Deputy Managing Director Gita Gopinath said that “the number of trade and FDI restrictions has increased three-fold since 2018”. Trade patterns are changing again, and FDI flows are more restricted now.
▶ Political alignment matters, not just the profit motive. Countries invest in strategic assets but increasingly only in allied or like-minded countries. The global economy is on the verge of becoming divided in trade and finance zones.
▶ This could be seen as a tacit admission that international capitalism has become directly political. It could also mean that after Ukraine strategic participation to one of the blocs is the key in securing genuine FDIs.
▶ The long-overdue –and much spoken of since 2008- reduction of China’s US Treasury securities is now really happening. In a period when even the domestic functioning of the market is intertwined with political decisions, there is nothing unusual about the international order gathering more and more a feudal-like character.
▶ Just as it was in mediaeval times, the fragmentation of markets –despite the presence of long-distance trade in the Mediterranean a thousand years agoleads to the fragmentation of banking and financial industries. Trade patterns reflect on financial ones.
▶ Fragmentation comes at a time when the post-2008 slowdown in cross-border capital flows (“slowbalization”) has matured. Globalization hasn’t ended but it has lost steam. It isn’t protectionism as some economists had predicted a decade ago. It is rather restricted participation to the global economy, an already incomplete market.
▶ These developments could imply that Turkey can become more and more reliant on funds from the Gulf and from Russia although this isn’t an irreversible trend. Perhaps a new economic team reflecting a new attitude could change that.
▶ A cartoon from 1914