Political Economy Shifts After the Pandemic

In 2005, when Thomas Friedman proclaimed “the world is flat,” globalisation appeared irreversible. The fall of the Berlin Wall, China’s entry into the WTO, the rise of the internet and the spread of global supply chains compressed distance and time. The assumption was that economic integration would lead to rising prosperity and a shared stake in stability for everyone. Two decades later, the world looks anything but flat. The 2008 global financial crisis was the first fracture. It exposed how deeply interconnected the system was, but also how unevenly its risks and rewards were distributed. Inequality widened within countries even as millions were lifted out of poverty globally. Then came geopolitics. Supply chains that had been optimised for cost and efficiency began to be seen as vulnerabilities. The pandemic delivered the shock therapy as Governments discovered how dependent they were on distant factories for essential goods. During the era of “hyper-globalisation” (1990–2008), global trade grew almost twice as fast as world GDP. After the global financial crisis, trade still grows, but no longer faster than the world economy. Capital flows tell a similar story. Foreign direct investment peaked before 2008 at over 5% of global GDP and has since fallen to roughly half that level, while becoming more volatile and more nuanced. Investment is more regional, more strategic and less frictionless. Supply chains, once optimised ruthlessly for cost, are now being redesigned for resilience. This shift from efficiency to redundancy leads to structurally higher costs and more inflation volatility. If globalisation delivered such clear economic benefits, what caused its slowdown? The core reason is not economic failure, but political. Globalisation grew global output, but it did not distribute gains evenly within countries. In many economies, wages stagnated even as profits and asset prices rose. Communities lost jobs faster than they gained new ones. This domestic backlash then collided with geopolitics. The pandemic and the war in Ukraine reinforced the lesson: efficiency without control can be dangerous. The deeper issue was institutional. Capital moved freely but safety nets remained national. When shocks hit, citizens turned to governments, not global systems, for protection. The implications for the global economy are profound. Growth is becoming more fragmented, less synchronised. Inflation is likely more volatile. The world economy looks less like a single engine and more like loosely connected regional systems. What lies ahead is not de-globalisation, but re-globalisation with constraints. A world of blocs, buffers and “trusted” networks. Less flat, more uneven. Less efficient, more resilient. The age of frictionless globalisation may be over, but interdependence is not. The challenge now is managing it without letting fragmentation become the new systemic risk.

Over the past few weeks, I’ve been deep in a project that pushed me to step back and reflect on a bigger global pattern that’s becoming impossible to ignore. We often talk about #globalisation as if it’s a permanent state of the world but in reality, the ground is shifting beneath us. And when you analyse policies, technology stacks, supply chains, and national priorities at a micro level, the macro picture becomes very clear: We are slowly but decisively moving from globalisation → #localisation. Not in a protectionist way. But in a strategic, resilience-driven, capability-building way. Across different discussions and working sessions, three themes kept resurfacing: ✅ #Geopolitical & security pressures: Decoupling, tech sovereignty, and data control are now strategic imperatives, not optional ✅ #Supply chain vulnerabilities: Pandemics, climate disruptions, and semiconductor shortages exposed how fragile “just-in-time” really was ✅ Domestic #economic & political forces: Countries are rethinking industrial policy, skills strategy, and investment incentives to build local capacity. This shift has major implications for national competitiveness. 🎯 Nations are no longer optimising for cost, they’re optimising for #sovereignty, resilience, and long-term capability 🎯 The next decade will be shaped not by who is cheapest, but by who is strongest, most #adaptable, and most #selfreliant Sharing my summary visual below. #globalstrategy #transformation #nationalvision

Reflecting on a busy and eventful 2024, I wanted to share my key takeaways from this year’s engagements and speeches. 𝟭. 𝗠𝗮𝗻𝗮𝗴𝗶𝗻𝗴 𝗚𝗹𝗼𝗯𝗮𝗹 𝗣𝘂𝗯𝗹𝗶𝗰 𝗗𝗲𝗯𝘁 𝗟𝗲𝘃𝗲𝗹𝘀 Global public debt has grown sizably over the last few years and is projected to approach 100% of GDP by the end of this decade. We need a strategic pivot in global fiscal policy – ensuring that governments will have the resources needed to invest in structural transformations, including climate change, and to fight the next crisis. Countries need a strategy that focuses on growth, that has effective guardrails to ensure compliance, and that builds in close engagement with all stakeholders including civil society to have the greatest chance at success. More here: https://lnkd.in/gw3uswMS   𝟮. 𝗡𝗮𝘃𝗶𝗴𝗮𝘁𝗶𝗻𝗴 𝗙𝗿𝗮𝗴𝗺𝗲𝗻𝘁𝗮𝘁𝗶𝗼𝗻, 𝗖𝗼𝗻𝗳𝗹𝗶𝗰𝘁, 𝗮𝗻𝗱 𝗟𝗮𝗿𝗴𝗲 𝗦𝗵𝗼𝗰𝗸𝘀 Russia’s invasion of Ukraine has had a profound impact. This conflict not only affected Ukraine and its neighbors but also reshaped the global economy. Increased fragmentation and higher defense spending are now realities we must navigate. Central banks need to adapt their strategies, and coordinated fiscal, financial, and structural policies are crucial to maintain macroeconomic stability in this more shock-prone environment. More here: https://lnkd.in/gm4yUHhq 𝟯. 𝗚𝗲𝗼𝗽𝗼𝗹𝗶𝘁𝗶𝗰𝘀 𝗮𝗻𝗱 𝗶𝘁𝘀 𝗜𝗺𝗽𝗮𝗰𝘁 𝗼𝗻 𝗚𝗹𝗼𝗯𝗮𝗹 𝗧𝗿𝗮𝗱𝗲 𝗮𝗻𝗱 𝘁𝗵𝗲 𝗗𝗼𝗹𝗹𝗮𝗿 The pandemic and geopolitical tensions have led countries to reassess their trading partners and economic strategies. There's a noticeable shift in foreign direct investment flows along geopolitical lines. These changes underscore the dynamic nature of global trade and the need for adaptable economic policies. More here: https://lnkd.in/g9cbVUjQ 𝟰. 𝗖𝗿𝗶𝘀𝗶𝘀 𝗔𝗺𝗽𝗹𝗶𝗳𝗶𝗲𝗿? 𝗛𝗼𝘄 𝘁𝗼 𝗣𝗿𝗲𝘃𝗲𝗻𝘁 𝗔𝗜 𝗳𝗿𝗼𝗺 𝗪𝗼𝗿𝘀𝗲𝗻𝗶𝗻𝗴 𝘁𝗵𝗲 𝗡𝗲𝘅𝘁 𝗘𝗰𝗼𝗻𝗼𝗺𝗶𝗰 𝗗𝗼𝘄𝗻𝘁𝘂𝗿𝗻 While AI can drive efficiency, it can also pose risks, especially during economic downturns. In the next downturn, AI could threaten a wider range of jobs than in past cycles. AI systems, trained on past data, may struggle with novel events, potentially exacerbating financial instability. To mitigate these risks, we must ensure tax systems do not favor automation over people, support workers affected by AI, and adopt measures to reduce financial and supply-chain amplification risks. More here: https://lnkd.in/gnM-XZtC   As we move into 2025, these challenges will remain top of mind as we work to foster a more resilient global economy. Wishing you all a prosperous and impactful new year!

Fresh off the press the book *The New Global Economic Order* (eds. Ing and Rodrik, 2026) says:  "As anti-globalization reshapes the world, the divide between East and West, developed and developing countries, and North and South, deepens, creating new challenges for economic policy and global governance. This book provides a nuanced and balanced analysis of economic transformation over the past century, exploring critical themes such as structural change, resource mobilization, and the future of global growth.  "Featuring insights from leading economists, this volume offers expert commentary on economic transformation, development strategies, and the evolving global order. It further examines into pressing governance questions surrounding AI, green technology, and the financing of health crises, future pandemics, and energy transitions.  "A vital resource for economists, policymakers, and researchers, this book provides strategic guidance on navigating global shifts and mobilizing resources to drive sustainable development in an emerging new global economic order."  and contains, among others: "Chapter 5 by Danny Quah explores how the relationship between trade interconnectedness and geopolitical tensions influences the current global order. During the so-called centripetal era (1980–2010), economic integration and geopolitical alignment played a crucial role in bridging the interests of developed and developing nations, contributing to a relatively stable world economy. However, the author notes a significant shift that began in the early 2000s, primarily driven by factors such as China’s economic rise (i.e., ‘China shock’), the emergence of a multipolar world, and evolving practices in multilateral cooperation. These changes have disrupted the previous alignment of interests and played an instrumental part in ushering in the so-called centrifugal era of world economy, where economic and geopolitical forces work in ways that exacerbate global fragmentation. To mitigate the growing fragmentation, the author offers three key proposals. First, he suggests fostering inadvertent cooperation, whereby mutual benefits emerge even without deliberate collaboration. Second, he advocates for breaking political gridlocks among the Great Powers to mitigate tensions. Finally, the chapter emphasises the potential of plurilateralism and innovative multilateral frameworks to restore global unity in a fractured world. By implementing these strategies, the author argues, the international community can begin to counteract the divisive impacts of current economic and geopolitical dynamics." Quah, Danny. 2026. "Correlated Trade and Geopolitics Driving a Fractured World Order", Ch. 5, pp. 54-66, in Ing, Lili Yan and Rodrik, Dani (eds.) *The New Global Economic Order*, New York: Routledge.   https://lnkd.in/g29u6T8G

Post-pandemic, global trade recovery is still brittle. In 2023, global trade grew only 0.2%, the slowest pace in 50 years. Forecasts for this year are brighter, with major international institutions estimating the rate will rise to between 2.7% & 3.5%. That would be a great improvement, but we can still expect challenges from protectionist trade measures, geopolitical tensions & changing political dynamics as voters elect new governments in major economies this year. In addition, cooperation on international trade issues seems to be wanting. The problems facing global trade were evident at the World Trade Organization Ministerial Conference held in Abu Dhabi last month. The WTO & by extension, freer trade, are pillars of the international system that are worth saving, and the to-do list is long. But at the heart of it all is inclusivity. Global institutions like the WTO must balance the priorities of developed & developing members. Global trade must be more equitable, sustainable & inclusive. There should be no double standards. The WTO should address challenges that transcend traditional trade boundaries, such as the integration of small business into the global market, increasing women's participation & the creation of resilient supply chains. The group should be a force for stability in times of uncertainty. Developed countries must realize that because they are way more advanced & better off than the rest of the world, they have a responsibility to create a more stable trade ecosystem. If the pie is steadily growing, there is no need to scramble for the pieces of a smaller pie quite so fiercely. Fragmentation & stagnation, or cooperation & progress? The choice should be clear to all. https://lnkd.in/gjfzrSbb

".... But here is the curious, even startling, thing. If you actually look at the data, rhetoric does not entirely match reality. Yes, America is threatening to become less globalist and US-China ties are weakening. But flows between other countries are rising. What we are seeing is a shift to a multipolar world — not necessarily towards deglobalisation. The usual way that politicians and voters track this is by looking at trade. Data from the World Trade Organization, for example, projects that trade growth will accelerate next year to 3 per cent, up from 2.7 per cent this year. However, arguably a better way to frame this is in an update released this week to a March study by the NYU Stern School of Business and the DHL shipping group. This series, which uses data starting in 2001, provides a bigger picture since it covers four different categories of global flows — not just trade but people, information and capital, too. Echoing the WTO data, the NYU series shows that overall global trade in goods and services remains strong. And while population flows collapsed during the pandemic, they have since rebounded. What is even more interesting is that information flows have exploded dramatically in the past two decades — although this is now flatlining due to spreading internet and patent controls. And the movement of money? Well, capital flows were at the same level in late 2023 as in 2008, the last peak. ..."

Updated Economic Outlook 2025-26: Riders on the Storm, Managing Uncertainty. As Chief Economist, I'm often asked: "How do we navigate an environment where geopolitics increasingly dictates economics?" Today, that question is more urgent than ever ⬇️ 📉 The global economy is bracing for its weakest expansion since the pandemic—+2.3% GDP growth in 2025—as we enter what can only be described as a new era of trade-driven uncertainty. The US has triggered a full-scale trade war, with tariffs on Chinese imports now reaching an effective 130%—the highest global import tariff rate since the 1890s. 🚨 Uncertainty is now the new macro regime. The policy shockwaves are already being felt: The US is expected to enter a mild recession in 2025. Europe’s growth prospects are also dimming despite fiscal support. Inflationary pressures are back in the US—headline inflation is set to peak at 4.3% this summer—even as the Fed holds rates in a delicate balancing act. Meanwhile, the ECB is likely to ease further, reflecting stark regional divergence in monetary policy. 🌍 In this environment, emerging markets are responding with agility—either by diversifying trade partners or fast-tracking bilateral deals with the US. Asia and Latin America are poised to benefit, though the fog of the trade war remains dense. 🏭 On the corporate front, firms are adapting—frontloading imports, diversifying supply chains, and in many cases, passing on costs to consumers. But while strong brands may absorb the shock, lower-margin sectors are under pressure. 📈 Capital markets? They underestimated the impact of Trump’s second term. Post-Liberation Day, we've seen a decisive shift to risk-off: falling yields, weaker equities, and a rethinking of central bank policy paths. Volatility is here to stay—but opportunities remain for the vigilant. As we move through 2025, one thing is clear: Strategic clarity and agile risk management will be essential to weathering this storm. #GlobalTrade #EconomicOutlook #RiskManagement #Insurance #Recession2025 #USChina #Tariffs #CapitalMarkets #Inflation #Geopolitics #Ludonomics #AllianzTrade #Allianz

A good policy matters morning to everyone. One thing about well designed & executed policy is that it takes time to ascertain its impact & results. This last week we obtained evidence which decisively showed an economy on a much stronger growth path and in a far stronger position that previously understood that permits such an evaluation. Policy implemented over the past few years to offset the adverse impact of pandemic era shutdowns that increased supply, harden supply chains & rebuild American infrastructure have borne fruit. The evidence reflects a post pandemic economy that has been fundamentally reorganized around industrial policy, dramatically changed monetary & fiscal policy dimensions alongside secular labor market & technological changes. The data viz here put together by @BBKogan illustrates how the American economy has moved to an improved growth path to that compared to the pre-pandemic trend. The economy has finally broken free of the shocks caused by the Great Financial Crisis & COVID eras. Zero interest rate policy has come to an end. These policy choices avoided the neo-austerity pushed following the initial recovery from the GFC the caused slow growth & higher unemployment than was necessary. One can clearly observe the results in the 3% growth path we are on & the 4.2% unemployment we have not too mention the impact of rising real wages & strong household spending. With interest rates now falling as price stability has been re-established I think the American economy is well positioned to sustain the current economic expansion featuring rising productivity & improved living standards. That will not happen without a cost. There will be challenges. The price & interest rate shocks unleashed by the pandemic have ended the era of zero interest rate policy. For those that work in financial markets that means the negative term premium on the cost of money is coming to an end. For those that do not it means the price level has increased and it’s not going to reset lower. We are in the midst of a permanent shift higher in interest rates, inflation & cost of capital relative to the past two decades. One era is over and a new economic era has begun that will require different policy frameworks with higher interest rates than that observed between 2000-2020 the most obvious. This means portions of the economy & firms that relied on financial innovation & massive leverage to generate outsized returns are going to face challenges in transforming their firms to compete in this new era. This will require a focus on creating value by those in possession of industry wide expertise that can capitalize on the transformational technology now in our possession. Those that can put their economies & firms in positions to maximize free cash flows in an environment of greater complexity, competition & cost of capital will create the conditions for their firms and economies to thrive.