An ever riskier world economy

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We live in the early stages of the revolution – Attempt to convert the American Republic into an arbitrary dictatorship. Whether Donald Trump will succeed in this attempt, yet, it is not clear. But what he wants to do seem intuitive. His unlawful, unpredictable, anti-ball, will have the greatest impact on the United States itself. But, it is inevitably, it has a major impact on the rest of the world, too, given the dominant role of the United States since World War II. No other country or a group of countries – or wants – can replace it. This revolution threatens chaos.

It is too early to know what the full consequences will be. But it is not too early to make enlightened guesses on some aspects, especially the inability to predict and the consequent loss of confidence that the Trump war of the introductory war is created. This was the loss of confidence The topic of podcast I recently made with Paul Crowgman. Without predictable policies, the market economy cannot work well. If uncertainty comes from domination, the global economy as a whole will not work well as well.

In the latest Global economic prospectsand The World Bank analyzed this only. Its conclusions are definitely temporary, but the direction of travel should be correct. It starts to assume that the definitions in their place in late May will remain on its expected horizon. This may be very optimistic or very pessimistic. No one, perhaps not even Trump, knows. “In this context”, global growth is expected to slow down to 2.3 percent in 2025 [0.4 percentage points below the January 2025 forecast]-Slow pace since 2008, along with two years of explicit global recession in 2009 and 2020. Over the course of 2026-27, it is expected that the capture of domestic demand will raise global growth to 2.5 percent-much less than the average of 3.1 percent of the flag of 3.1 percent. “

All this is bad enough. But the risks appear to be an overwhelming majority on the negative side. Thus, the uncertainty resulting from Trump’s trade war can lead to much larger decreases in trade and investment than expected. Certainly, it will be difficult to trust in any supposed “deals” that have been announced now. Again, growth will increase the social, political and financial decrease, which raises risk perceptions in the markets. This may create a loop of torment, while increasing financing costs of risks and lowering growth. The weak borrowers, from the private and public sector, may be pushed to failure to pay. The shocks caused by natural disasters or conflict will be more economical.

You can imagine the sides. New commercial deals may be reached, as many may trust, courageously. The AI-Fairy Ghawar may increase productivity and global investment. Also, everything may only calm down. Difficulty in this is that Trump’s shock today comes after nearly two decades of shocks: global financial crises and the euro area; pandemic; Postpartum enlargement; And the war of Ukraine Russia. Animal spirits should be weak.

Unfortunately, as in Andremet Jel, the World Bank’s chief economist, stresses in a prelude, “The poorest countries will suffer more than others.” “By 2027, the per capita GDP of almost high-income economies will be expected to be before the Covid-19 pandemic. But developing economies will be worse, with the level of the individual’s gross domestic product decreased by 6 percent.” With the exception of China, it may take two decades to recover these countries in 2020.

This is not just a result of the last shocks. Thus, “growth in developing economies has risen down for three consecutive decades – from an average of 5.9 percent in 2000, to 5.1 percent in 2010 to 3.7 percent in 2020.” This decreased growth in global trade tracks, from an average of 5.1 percent in 2000 to 4.6 percent in 2010 to 2.6 percent in 2020. At the same time, debt accumulates. In the long run, Trump will not help Trump insist that climate change is a legend as well.

So, what must be done? First, the liberalization of trade. While developing countries have been greatly liberated in recent years, most of them still have a much higher tariff than high -income economies. The targeted promotion of the infant can work. But if a country does not have a small international destiny, the best policy is still that free trade, along with the best possible policies to attract investment, improve human capital and maintain economic stability. In a bad environment, as now, this is more important than this benign.

Options for the greatest powers – China, the European Union, Japan, India, the United Kingdom, etc. – more complicated. First, they also need to improve their policies to the maximum extent. They also need to cooperate in trying to maintain global rules among them, not the least in trade. Some forces need to realize that global imbalances are in fact an important issue, although they are not related to commercial policy but rather global macroeconomic imbalances.

This is far from everyone. As the United States retracts its historical role, others suffer from the greatness of orientation to them. Continuous progress in facing climate change challenges and economic development depends on these forces. A better way to solve excessive debt is necessary, for example. This requires confronting today’s trend towards more doubts than ever.

It is more likely to witness a great effort to strengthen a more prosperous and cooperative world. Some people will say that such an end will only indicate a healthy “realistic”. But it will be foolish: we share a single planet; Thus our destinies are intertwined. Modern technology has made this inevitable. We are at a turning point: we must choose wisely.

Martin.wolf@ft.com

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