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Five Trends to Drive the Global Economy Regardless of the Outcome of the War in Ukraine

  • Fragmentation, de-globalisation and the ageing of the global labour force can lead to more persistent inflationary pressures forcing central banks back to their core, price stability.
  • ESG issues are becoming more complex when “S” and “G” gain importance in a more fractured world creating pressures for near-sourcing and shorter supply chains.
  • Global public debt is record high, but the new focus on defence spending, on top of the green transition, will keep public spending high, and most likely force EU countries to accept that EU debt is a permanent tool.

We believe the world is in a turning point in more than one way. The war in Ukraine has highlighted that we have seen the end of a long and peaceful era – an era where stronger economic ties were thought to lower the risk of conflicts – a thought also at the core of EU. Even if it is too early to judge what the long-term outcome of the war in Ukraine will be, there are some trends that seem quite apparent regardless of geopolitical outcomes.

Whether we are entering a period of a cold war, hot war or something more pleasant, some trends seem certain while many of their impacts and magnitudes remain uncertain. We think that at this point it is relevant to discuss these potential outcomes and impacts. In this paper, we highlight five trends that could drive the global economy over the next 5-10 years. The five drivers we identify, are:

  1. A more fragmented world, a more unified west, and a more integrated EU with larger shared liabilities,
  2. Increased government spending due to defence and green transition in Europe,
  3. A rapidly ageing labour force in the developed world,
  4. ESG issues becoming ever more complex with the rise in ‘S’ and ‘G’ alongside continued emphasis on ‘E’ and
  5. De-globalisation driving more persistent price pressures, forcing central banks back to the core of their mandates.

These trends are often interlinked and their effects may vary depending on the geopolitical outcomes. The war in Ukraine is driving increased investments in defence and green transition while it is almost certain to lead us to a more divided world with increased rivalry, acute threat of sanctions, and the possibility of outright warfare.

Labour markets and supply chains have been (and will in the future be) affected by both the pandemic and the war. At the same time, sustainability issues are becoming more complex after economic risks linked to operating in countries managed by authoritarian regimes have realised for western businesses, while environmental issues will stay high on policymakers’ agenda.

Full report in PDF.

Danske Bank
Danske Bankhttp://www.danskebank.com/danskeresearch
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