![]() This “new global map” – as I have called these changes elsewhere – is likely to have first-order implications for central banks. Indeed, in the wake of the Russian invasion of Ukraine, the share of global firms planning to regionalise their supply chain almost doubled – to around 45% – compared with a year earlier. But that could, in turn, accelerate fragmentation as firms also adjust in anticipation. In response, governments are legislating to increase supply security, notably through the Inflation Reduction Act in the United States and the strategic autonomy agenda in Europe. Supply disruptions on these fronts could affect critical sectors in the economy, such as the automobile industry and its transition to electric vehicle production. ![]() And Europe depends on China for 98% of its rare earth supply. Today the United States is completely dependent on imports for at least 14 critical minerals. That has been most visible in the European energy crisis, but it extends to other critical supplies as well. Recent events have laid bare the extent to which critical supplies depend on stable global conditions. ![]() Instead of more elastic global supply, we could face the risk of repeated supply shocks. īut that period of relative stability may now be giving way to one of lasting instability resulting in lower growth, higher costs and more uncertain trade partnerships. That in turn underpinned a policy framework in which independent central banks could focus on stabilising inflation by steering demand without having to pay too much attention to supply-side disruptions. This led to a deepening of global value chains and, as China joined the world economy, a massive increase in the global labour supply.Īs a result, global supply became more elastic to changes in domestic demand, leading to a long period of relatively low and stable inflation. Under the hegemonic leadership of the United States, rules-based international institutions flourished and global trade expanded. In the time after the Cold War, the world benefited from a remarkably favourable geopolitical environment. In short, we could see two profound effects on the policy environment for central banks: first, we may see more instability as global supply elasticity wanes and second, we could see more multipolarity as geopolitical tensions continue to mount. And today in my remarks, I would like to explore what the implications might be for central banks. And this fragmentation may well coalesce around two blocs led respectively by the two largest economies in the world.Īll this could have far-reaching implications across many domains of policymaking. ![]() We are witnessing a fragmentation of the global economy into competing blocs, with each bloc trying to pull as much of the rest of the world closer to its respective strategic interests and shared values. Following the pandemic, Russia’s unjustified war against Ukraine, the weaponisation of energy, the sudden acceleration of inflation, as well as a growing rivalry between the United States and China, the tectonic plates of geopolitics are shifting faster. The global economy has been undergoing a period of transformative change. Peter McColough Series on International Economics Speech by Christine Lagarde, President of the ECB, at the Council on Foreign Relations’ C.
0 Comments
Leave a Reply. |