Uncertainty and resilience are currently two of the most coined terms.
Both have emerged as key concepts due to the changing global context in which we find, in which any event, no matter how exceptional it may seem, is possible. Thus, the consequences of interruptions due to interconnection in all areas of our environment are numerous, although in this post I will focus on those in the economic field.
The structure of the world economy and business growth are being transformed due to the consolidation of the globalization process, the generalization of economic regionalization processes, and the increase in differences in the growth of GDP of the three major economic areas in the world: the United States, the European Union and China.
Globalization has contributed the integration of world markets, allowing the allocation of productive resources to be optimized and increasing global well-being of countries that increase their trade relations with other states. However, adapting national economic structures to new circumstances of global competition causes important external and internal redistributive effects, and this redistribution may imply that those affected oppose these processes.
Therefore, the importance of the existence of institutions that allow the redistribution of costs is vital and in summary the role of multilateral mechanisms that bring together state, non-state and supra-state actors benefit what is known as global governance. However, we should not ignore the fact that current institutions and norms regarding economic governance have become obsolete in many aspects.
These are, to mention two notable examples, the World Bank or the International Monetary Fund, created more than sixty years ago. For countries considered emerging at the time of their founding (read China, Russia, India or Brazil, that is, the so-called BRICS), these organizations do not represent their realities today, given that China far from being an emerging economy it is considered a first-rate power at the moment.
Thus, the growing economic and political weight of emerging countries makes their inclusion in decision-making and the restructuring of global decision-making forums a priority, along with a greater contribution and assumption of greater responsibility by the new members.
Rethinking governance models is one of the pending issues in the international context.
TODAYS GLOBAL ECONOMY
The increase in the cost of living, low consumer confidence and the unemployment rate caused economists to predict a recession year for 2023 aggravated by the energy crisis derived from the Ukraine war and its impact on gas, the lack of oil caused by a reduction in its production, and the increase in China’s energy demand to recover pre-pandemic normality.
In this context, different measures has been taken. The European Central Bank opted to raise interest rates to 4.5% to relieve the situation, while the United States Federal Reserve kept them between 5.25% and 5. 5. %. The Chinese central bank lowered it to 3.45%. In all regions action was taken on the matter, although the results of these actions will still take months to bear fruit. In summary there is a consensus among economists that there is a global economic cooling, as activities continue to be affected by recent economic and geopolitical events.
FUTURE OF GLOBAL ECONOMY
To adapt to possible disruptive events, it will be vital in the coming months for companies to monitor three factors: price evolution, evolution of global activity (especially that of emerging countries), and possible geopolitical tensions.
Companies must anticipate a possible crisis or the well-known gray rhinos.
Companies must anticipate a possible crisis or the well-known gray rhinos (quite probable risks but no less impactful that will end up generating serious crises for companies and that are usually ignored despite being easy to recognize) and focus on what-if and what-next scenarios to predict market changes, uncover unexpected interdependencies and risks, or even provide forecasts about supply chain opportunities, talent management, consumer engagement and expectations, and assessment of commercial and technological models, since these are not about risks but also about opportunities.
© International Relations Consulting 2023
Comments