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Big-picture shocks to the global economy
- It's easy to think about thematic downside risks for the global economy...
- ...but there are plenty of risks to the upside, too...
- ...which will influence potential growth in the coming years
The world often feels like a worrying place, with downside risks aplenty. In recent years, they’ve been easy to find – from the pandemic to wars and the shock of higher interest rates. And yet, through all these challenges, the global economy has kept rolling – the US economy has grown quickly, rather than sinking into recession, and stock markets hit record highs.
There are plenty of good things happening across the global economy.
When thinking bigger picture, it’s just as easy to be nervous about the future. Climate change risks upending life as we know it, deglobalisation and geopolitical tensions could mean sustained periods of higher inflation and weaker growth. AI could bring about a dystopian future of job losses and misinformation, and ageing populations across the world could mean that already elevated debt levels become unmanageable.
Given these challenges, it's easy to see why many often see the world through such a negative light. But we also want to highlight the reasons for hope. There are plenty of good things happening under the surface, across the global economy, which are worth keeping in mind. Some of them focus on climate change, where the rollout of clean energy continues to happen at an unimaginable pace, and the lower costs now mean investment in solar and wind power is likely to accelerate across the world.
On tech, for all the worries about AI, it could also offer tremendous benefits and usher in an era of unprecedented human discovery, making it much easier to find cures for diseases or solutions to other existential problems within society. The continued spread of digital technology could be a huge boost to underlying productivity, too.
In terms of demographics, the rapid ageing of the world’s population creates fiscal headaches, but slower global population growth could lessen the pressure on natural resources and infrastructure. Part of the reason for this shift is the ultimate good news: people are living longer, healthier lives.
As a result, it’s important to remember framing. Books such as Not the End of the World by Hannah Ritchie and Factfulness by Hans Rosling do that expertly – highlighting how bad news can often dominate the reality happening under the surface.
The truth is that the risks to the global economy over the coming decade are much more finely balanced than we may often hear about – with many commentators focusing just on one of these areas in isolation. In practice, these factors will push against each other – some lifting potential growth and others pulling it down.
The risks to the global economy are finely balanced.
The impact across the world will also be uneven from each of these shocks – both by sector and economy. Some areas could see huge support from digitisation and favourable demographics, whilst others could see the catastrophic impact of climate change or structural fiscal strains. This creates an even tougher world for policymakers, businesses, and investors – but one where it is important to be aware of the various underlying changes in the global economy and how they can influence the pace and shape of global growth.
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