Economic Development

Cooperation in a fragmented world—why the signs are not encouraging

January 26, 2023

Global

Cooperation in a fragmented world—why the signs are not encouraging

January 26, 2023

Global
John Ferguson

Head of globalisation, trade and finance

John is the head of Economist Impact’s globalisation, trade and finance practice. He is responsible for leading and developing the practice across different geographies and sectors, including both public and private organisations. As the global economy is being transformed by multiple forces including geopolitics, technological progress and climate change, the practice works with clients to navigate these structural shifts. A frequent public speaker, his delivery style helps to provide context to many global issues in an insightful and accessible way, supported by his 15 years in policy and economic analysis. Most recently, as Director of Macroeconomics, he was responsible for guiding The EIU’s global economic analysis across 200 countries. Prior to this, he was Director of Country Analysis and Global Forecasting. John holds a Master’s degree in International Economics from Sussex University where he specialised in macroeconomics and trade, and an Honours degree in Psychology from the Australian National University. Areas of expertise: globalisation, trade and finance; macroeconomics; geopolitics and international relations; The economics of climate change; developing economies; foreign direct investment and supply chains

John Ferguson, practice lead for new globalisation at Economist Impact, shares his three key takeaways from The 2023 World Economic Forum in Davos, Switzerland.

Cooperation in a fragmented world was the theme of this year’s World Economic Forum (WEF) in Davos, Switzerland. While cooperation was high on everyone’s agenda, there was a realisation that ongoing fragmentation was a genuine concern for the global economy. As many conversations focused on sustainability, inclusion and digitalisation, efforts are complicated by increasing geopolitical and economic uncertainty.

After many panels, roundtables and discussions at Davos, here are my three key takeaways from this year’s WEF:

  1. Trade cooperation is critical to avoiding a severe fragmentation of the global economy. I heard numerous Davos attendees—from the public and private sectors—discuss the importance of global trade, but also raise concerns about where things could be headed. A beggar-thy-neighbour approach to global trade is particularly worrying as countries respond to protectionism in advanced economies. A renewed push on multilateralism for this phase of globalisation will be essential.

    The signs are not encouraging. On national security grounds, many countries are tightening investment regimes that restrict incoming investment from trading partners. At the same time, advanced economies are increasing subsidies for domestic industry.

    Meanwhile, geopolitical trends among the world’s largest economies are causing apprehension. It is becoming increasingly difficult for policymakers, especially from the developing world, to avoid having to choose between prioritising relations with the United States and China. While China’s reopening will support global economic growth later in 2023, the swift policy change has only heightened uncertainty related to policy trends in China. This reinforces the need for supply-chain diversification, which many companies are now pursuing, as shown in our recent Trade in Transition report. It was evident in Davos that trust in global trade must be restored.

  2. Private-sector intentions to prioritise resilience and sustainability issues are high, but these goals cannot be met by good intentions alone. Companies are feeling cost pressures from multiple sources, which makes investing in resilience or sustainability harder to justify. The problem is that the return on investment is either too hard to estimate or, if known, falls across the whole sector—rather than the individual company. In the former case, more work must be done to demonstrate business value or revenue opportunities for sustainability-related investments. In the latter case, public policy is required to solve this market failure and ensure necessary investments are made to make the sector more sustainable.

  3. Allow me a shameless plug. Suppose the global community addresses WEF’s core theme of cooperation in a fragmented world. In that case, consistent and credible research to enable evidence-based decisions is needed. With our clients, partners and staff, Economist Impact will research the most significant themes discussed at the WEF: trade, supply chains, globalisation, infrastructure, health and sustainability. Keep an eye out for this vital research throughout 2023.

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