A recent presentation on some of the global economic risks, including fiscal drag, another round of lockdowns and some potential policy shifts in the U.S. and whether China will be a major source of demand/credit.
- Covid-19 has reinforced existing economic and geopolitical frictions, pressured fractured supply chains, dampened migration, amplified investment and export restrictions and encouraged expansion of government support.
- China’s economy has been relatively resilient, helped by extensive stimulus from other major economies, but it has not yet been a major source of demand or new capital for emerging economies. China, like many large economies, is likely to focus inward, refocusing on key priority areas, limiting new debt abroad, but avoiding entanglements. The pressure to reduce exposure to US supply chains for inputs in key technology will increase costs.
- The role of the state has increased not only in China and oil producers but also in many developed economies. This includes lifelines supporting employment and avoid defaults, greater government-led investment in major economies, cross-investment between sovereign pools of capital and efforts to manage trade and investment.
- The comfort with coercive policies such as sanctions, tariffs and export controls is unlikely to fade, encouraging targets to bolster national resilience. This involves a broader push towards adding redundancy to supply chains, especially in large continental economies, and some regionalization. Some major economies (EU, India) prioritizing resilience against both US and Chinese coercive policies.
- The tension between market-driven and state-supported policy, as well as security concerns will complicate global coordination even in the case of a Biden administration, which will look to bring coalitions together.
Ziemba Insights 