Davos thinks about the future of the global economy

Did COVID and the war in Ukraine mean the death of globalization or its transformation? At the Davos Forum, the questioning is profound as the global economy slows.

Historically advocated by anti-globalization movements far from the hushed salons of the forum, “deglobalization” has reemerged in the face of the deep disorganization of production chains linked to the war in Ukraine and restrictions in China.

“The price to be paid or the waiting time are no longer compatible with our industry,” said Loïc Tassel, President for Europe of the American consumer goods group Procter & Gamble, during a conference on Monday, using the example of the disruptions in the port of Shanghai. “We are now bringing the cost and resilience of production chains into the equation. That was a long way from our minds three years ago,” he continued, believing that “globalization is taking a break.”

The city of Shanghai is a symbol of the extreme tension in supply chains, which have been struggling for weeks with factories closing and its port congested. China’s “Zero-COVID” strategy significantly increases delivery times for companies. Added to this is the war in Ukraine and the massive disruptions in prices and supplies of energy and agricultural commodities, which can lead to famine in some fragile countries.

Instead of “deglobalization,” Pamela Coke-Hamilton, director of the International Trade Center, a Geneva-based agency, prefers to speak of diversification and outsourcing to nearer and less conflict-ridden areas.

The cheapest

However, “reglobalization” comes up against the very way globalization has gradually shaped the planet: towards the cheapest most of the time, at the expense of a massive dependence on certain regions.

“We’ve never imported so much from China since we said we’re less dependent on it,” launches Gilles Moëc, chief economist at the Axa Group, ironically in the bays of Davos. “Also, one of the reasons people are nervous right now is that it would be catastrophic if China were unable to meet global demand due to the pandemic. »

Regarding the global economic panorama, “the horizon has darkened,” noted International Monetary Fund executive director Kristalina Georgieva in Davos on Monday. And while the 3.6% global growth forecast for this year rules out a global recession, “that doesn’t mean it’s ruled out for developed countries or for high-risk countries.” According to the OECD, the clouds are already gathering in the developed areas: growth in the first quarter was only 0.1% compared to the previous quarter, this international organization announced on Monday, for the G7 countries there is even a decline of 0.1% to record .

In fact, one of the reasons people are nervous right now is that it would be catastrophic if China were unable to meet global demand due to the pandemic.

The second quarter promises to be sluggish as the war in Ukraine takes root and confinement in China mounts.

After spending lavishly during the pandemic, “the recipe is not obvious and that worries everyone a little,” adds Gilles Moëc. This is especially so as central banks, like those of the United States, are raising rates sharply to fight high inflation, contrary to the potions chosen during the COVID crisis.

The European Central Bank is also set to exit negative interest rates, despite last week slashing the Commission’s full-year growth forecast for the euro zone from 4% to 2.7%.

China, the engine of the global economy, has been unbeatable, posting its worst economic performance in two years in recent days, with retail sales and industrial production at half-mast in April and unemployment near record levels.

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