Global Macro Research: A New World Order

The global economy is undergoing a profound transformation, marked by unprecedented uncertainty and rapid change as a new world order emerges. This paper delves into the critical factors driving this reshaping and examines the potential implications for investors and policymakers.

• The multilateral order is unravelling: Pax Americana, which embodies the rule-based order and common ideals that united nations since WWII, is crumbling. Faced with the headwinds of deglobalization, demographic decline and the debt overhang, the system is no longer able to generate sufficient growth to sustain itself. 
• Enhancing GDP per capita has become imperative: Without population growth, the only path to sustainable economic growth is to expand GDP per capita. However, productivity has been declining, and labor intensity faces significant challenges in an aging society.
• Artificial intelligence is a potential catalyst for revolutionary productivity gains: This exciting new technology may have the potential to restore growth in GDP per capita but will require vast amounts of resources. Given debt levels, the competition for resources will be a stark reality to face in future.
• Inflating away our problems carries risks but may become inevitable: Ailing economies could attempt to inflate the problems away and central banks may be forced to relax inflation targets as it becomes politically unpalatable to suppress wage growth.
• The path to interregnum and a new world order: Governments have been exhausting every available policy tool and are likely to resort to even more interventionist policies in the years ahead as they attempt to safeguard the system.
• Accept uncertainty and build resilience: As we review the investment landscape, it’s not just the components of the game that are being changed, but the very rules themselves that are being radically altered. This creates a very different level of uncertainty. Now is not the time for heroics; stay focused on your objectives and maintain optionality with liquid assets that can be swiftly redeployed if uncertainty declines and opportunities arise.