Trade, the digital economy, debt and payment systems are the areas where fragmentation is accelerating, according to the latest report from the International Chamber of Commerce (ICC).
The investigation "A fragmented world”, released on Thursday (06.04.2023/XNUMX/XNUMX), shows this reality of the world economy being severely hit by several shocks, in order to help minimize its risks. These issues raised in the form of collaboration should not be wasted.
The document begins with a review of trade recovery in 2022, continues with a trade outlook for 2023, and details the acceleration of economic fragmentation.
Key findings from the business report, authored by Mélanie Laloum, include:
- Trade recovered, but was disrupted by the war in Ukraine, restrictions due to persistent COVID-19, high inflation and lower economic growth.
- Globalization has not been reversed, but is changingThere is evidence of decoupling between China and the United States, but also between Russia and Western countries. However, there is no evidence of US allies decoupling from China.
- Trade growth is expected to slow in 2023 amid lower growth and high inflation, tight financial conditions will increase pressure on highly indebted governments and firms, amplifying vulnerabilities and deterring investment and trade flows.
- The United States and China will continue to decouple some sectors of their economies. Despite an increase in US imports from China in 2022, the relative shares of merchandise imports from China, foreign direct investments, and scientific collaborations suggest a continued decoupling of the two economies. The US-China rivalry will restrict merchandise trade and could boost inflationary pressure in the United States.
- Europe will continue to reduce its dependence on Russia in 2023 to achieve its energy and climate goals. The war in Ukraine has forced European countries to reduce their dependence on Russian coal, natural gas and oil in 2022. Against a backdrop of high fossil fuel prices, global investments in clean energy will continue to increase, with renewable capacity expected to nearly double over the next five years.
- Demand for services, especially travel and transportation, is expected to increase in 2023. Due to the easing of China's zero-Covid-19 policy and a strong US dollar, tourism is expected to grow steadily in 2023.
- Agile supply chains will be critical in 2023. Companies will continue to adapt to this uncertain and volatile event by adjusting their strategy and diversifying their suppliers.
The report indicates how it is being accelerating fragmentation. This can be seen in four indicators:
First, the increase in subsidies, Export controls and investment restrictions are contributing to trade fragmentation. The number of restrictive trade measures has increased significantly since the pandemic, signaling more protectionism. Countries are competing to subsidize green industry and restrict the flow of goods and capital. The report also argues that digital fragmentation both drives and reflects geopolitical tensions.
Second, technology is being nationalized to ensure strategic autonomy. Increased regulations on data storage, use, transfer and content moderation could limit the growth of trade. The ICC argues that without international cooperation, digital sovereignty could threaten to “break the Internet.”
Third, debt fragmentation could lead to a debt crisis. Geopolitical tensions are hampering debt restructuring negotiations. In a context of monetary tightening, prolonged negotiations could increase debt vulnerabilities. Failure to reach an agreement risks leading to another lost decade for several developing economies.
Fourth, the fragmentation of payments This could increase instability and erode the role of the US dollar. While the US dollar remains the dominant currency, its role is being eroded. Lack of interoperability, regulation and cooperation for payment systems could increase the risk of fragmentation and lead to further financial instability. Emerging and developing economies will bear the brunt of the economic losses.
It is therefore essential to address fragmentation in these crucial areas.
The report by ICC, one of the world's leading business representative organisations, is a positive contribution to raising awareness and promoting cooperation that will bring peace and prosperity to all.ICC Trade Report 2023: A Fragmented World)
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