Globalisation has reached its peak and we’re about to witness an unwinding of the trend that has dominated economics and trade for decades, according to one of Deutsche Bank’s best-known strategists.
Writing in the bank’s FX Blog, chief forex strategist George Saravelos argues that eight years on from the collapse of Lehman Brothers, numerous signs point to the slow death of globalisation.
“If 2008 marked the trigger, this year is likely to be remembered for signalling the persistence of a new mega-trend: the peak, and likely unwind of globalization,” Saravelos writes.
“The world has been on a ‘globalising’ trend since the end of World War II. But looking at evidence this year, there is compelling evidence to argue that this is being reversed.”
Saravelos argues that there are three crucial aspects that point towards the decline and fall of globalisation over the coming years.
1. Cross-border trading and finance are shrinking — “World exports as a per cent of GDP have peaked and have been on a steady, slow decline over the last two years. Crossborder gross financial flows into the US peaked in 2008 and are now at best going sideways. The number of new trade deals is at its lowest in more than two decades.”
2. Anti-globalisation sentiment is growing in politics — As Saravelos argues, Britain will most likely have left the European single market within years, and that the US election has been almost entirely focused on concerns around immigration and globalisation.
“The world’s most historic trading nation will exit the world’s biggest free trade area by the end of this decade. The US presidential election is dominated by anti-trade and immigration concerns that are unlikely to shift, whatever the outcome. The political discourse is shifting in many other countries too,” he says.
3. Changes in regulation worldwide suggest that globalisation is waning — “China has slammed the brakes on its capital account liberalization program and is more likely to tighten further, rather than reverse any time soon. Banking regulation is increasingly balkanized, forcing greater national reporting and capital standards and raising the cost of crossborder business. Fines on multinationals have reached record levels this year,” Saravelos notes.
Alongside the strategist’s commentary, Deutsche Bank includes four key charts to illustrate its point about the coming decline of globalisation:
The FX Blog concludes by saying (emphasis ours):
“Whatever the outcome of today’s US election, it is hard to avoid the conclusion that globalization has peaked and most likely embarked on a reversal over the last few years. Perhaps the only exception is the global dissemination of ideas, helped by persistent innovations in technology such as social networks. Political freedom is helping the globalization of ideas, the polity institute’s index of democracy.”
Saravelos is by no means the first person to suggest that we’re on the brink of a drastic shift in global economic trends. In September, fellow DB strategists Jim Reid, Nick Burns, and Sukanto Chanda argued that “the current economic age we’re in is coming to an end.”
In the past couple of weeks, several prominent figures in British economics have said as much. Former Chancellor George Osborne said at a Bloomberg event: “At the moment, if you look around western societies, the support for democracy is declining, the forces of protectionism are rising, the concern about the pace of technology is growing, [and] technology is being used to echo back people’s prejudices rather than challenge them.”
Alongside Osborne, Lord Turner, the former vice chairman of Merrill Lynch Europe and ex-head of the Britain’s financial watchdog thinks “We may be at a turning point in the nature of capitalism.”
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