The slowdown of globalisation?
As world leaders in business, politics and academia gather in Switzerland for the annual World Economic Forum (WEF) 2017 conference, minds have turned to the recent backlash against globalisation and what a move away from it may mean.
Globalisation has seen world economies become connected through trade, digital advancement and the import and export of culture. Historically, it has been thought of as a positive action; the reduction of trade barriers has added an estimated 45% to global GDP growth since 1990.
However, following the economic crash of 2008, disillusioned businesses have limited their outgoing investment, in spite of low-interest rates and strong asset markets. This lower level of capital expenditure has a negative impact on productivity improvement, corporate cashflow and overall world GDP growth.
For many, it would seem globalisation is to blame.
The fate of the TPP
Bank of England Governor Mark Carney warned in a recent speech that there was a growing sense of “isolation and detachment” among people and businesses who felt unable to keep up with the technology and international reach that competitive global business requires.
One of the most outspoken proponents of anti-globalisation is US President-elect Donald Trump who, among other things, has vowed to withdraw from the Trans-Pacific Partnership (TPP), a free-trade agreement between the US, Japan and 10 other countries circling the Pacific Ocean.
Instead, much of his campaign had a focus on domestic infrastructure growth and a move away from ‘economic interdependency’. This undoubtedly contributed to the rise of ‘globalisation vs nationalism’ in the US, a populist idea reflected worldwide in the outcome of the Brexit vote and in Italy’s constitutional referendum.
In a similar vein, Theresa May has confirmed a complete withdrawal from the European single market will be a condition of any Brexit deal made with the EU. While also promising to push for the “freest possible trade”, the Prime Minister stated that the UK’s relationship with the customs union would change significantly.
China's debut at Davos
However, Chinese President Xi Jinping presented a case for further international cooperation in his opening statement to the WEF in Davos, Switzerland.
Indicating that China will continue to champion free trade, he said: “Any attempt to cut off the flow of capital, goods, and people between economies, and channel the waters of the ocean back into isolated lakes and creeks is simply not possible.
“China’s move towards open markets had been choppy, with plenty of whirlpools and choking along the way. But we have learned to survive, and we must have the courage to keep swimming in the global market.”
The International Monetary Fund (IMF) has identified the decline of globalisation as one of the biggest risks of 2017 and recently updated its economic forecasts to accommodate an a growing aversion owards international trade that is growing in popularity.
IMF Economic Counsellor Maurice Obstfeld commented: “Social dislocation due to globalisation and, even more, to technology change is a major challenge that will only intensify in the future. One result has been wider inequality and wage stagnation in many countries.”
The body warned against countries turning inward, citing that in the US, for example, higher internal spending could force the US central bank to raise interest at a faster rate, therefore inflating the US dollar and risking retaliatory responses.
PwC noted in their predictions for the world economy that globalisation is due to take a back seat as measures of economic nationalism will likely prompt the Wold Trade Organisation (WTO) into action with stricter rules.
Ahead of the WEF conference, PwC’s Global Chairman Bob Moritz said: “Globalisation vs nationalism. It’s top of mind for everybody and if we’re not addressing it, I don’t think we’re doing it a service.
“For me, it’s really important because it goes to [PwC’s] purpose: building trust in society and solving important problems.”
The topic is undoubtedly divisive and one that will have a profound impact on the world’s biggest businesses.
What do you think? Will future CAs operate on increasingly domestic accounts or will globalisation continue? Leave a comment below.