In a low-trust world that is becoming increasingly predatory, investors should expect supply shocks to become a new norm and the distribution of economic gains to stay uneven. Another result of the global order fragmenting is the rise of fiercer competition between countries. However, this competition is no longer limited to trade, tech, industrial leadership or energy security; it is instead being shaped by a relentless search for capital at the public and private level.
Key Takeaways
- Amid a fragmenting global order, growth is increasingly resting on a narrow base of drivers, economic gains are becoming more unevenly distributed, and inflationary pressures are likely to persist. Against this backdrop, monetary and fiscal policy need to be considered together, with fiscal policy acquiring greater importance despite limited fiscal room.
- Summer policy events reflect an interlinked trend: Japan’s push for domestic investors to fund its debt, US Treasury buybacks, and moves to diversify suggest the old model of recycling global savings into US bonds is fading.
- We expect major central banks to continue tightening monetary policy, but by less than markets currently price in. Their policy paths remain highly data-dependent amid war-related inflationary risks.
Competition does not necessarily imply weak growth. In some regions, the race for innovation and the pursuit of strategic autonomy are actually supporting, if not boosting, economic activity. What makes the picture more fragile is the concentration of that economic performance: growth is increasingly resting on a narrow base. Ultimately, countries are all investing in the same sectors, and growth policies are shifting away from consumption and labour towards investment and capital. In this new environment, the economic benefits will be less and less evenly distributed.
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