A new world ‘disorder’ is emerging, in which Western hegemony is over, dollar dominance is under major pressure and nuclear proliferation will hasten. The longer the war, the higher the risk of recession and increased ’slowbalization’. Resilience and shortened supply chains have become priorities. Accelerated climate disruption is perhaps the highest priority of all. Activism is increasingly innovative – and effective. Innovation in the financial sector can be harnessed to be good4nature.
- Disorder is the word that pervades this barometer and sums up what’s in store. The interdependent worlds of geopolitics, economics, finance, the environment, society and tech are all evolving in a disorderly fashion, creating fragmentation, decoupling and partitions.
- Russia’s war in Ukraine is severely impacting the world economy. At the very least, it will wipe out 1 percentage point of global GDP growth and add 2 or 3 percentage points of global inflation. The longer the war drags on (the most probable scenario), the more likely a global recession becomes, as the supply shock triggered by the conflict morphs into a demand shock by squeezing consumer purchasing power. The fall in real incomes and rising prices will in turn translate economic risks into social and political ones.
- Worldwide, the explosion in the price of energy, food and other commodities is leading to a surge in inflation (respectively +9.8% and +7.6% in Spain and Germany in March, Y-o-Y). With escalating geopolitical risks, the only way for prices is up. In the months ahead, double-digit inflation cannot be excluded.
- Putin excels at creating uncertainty and at keeping everybody on edge. Hopes of an early negotiated settlement are fanciful. Most likely, the war will lead to a protracted bloody stalemate and a long-lasting period of Russian isolation from the West. The worst days of the conflict are still to come. The longer the war of attrition persists, and the worse Russia fares in it, the greater the perils facing not only the West but also the rest of the world. The greatest potential global danger is long-term nuclear proliferation (the invasion of Ukraine proves the risk of giving up your nuclear insurance policy). Putin and his war change everything: neither peace on the European continent nor with NATO is conceivable as long as he remains in power. And in the longer term, the emergence of two blocs divided on pretty much everything is looking all too possible.
- The conflict in Ukraine marks the end of Western hegemony in global affairs. The West (defined by a set of values and institutions, not geography: Japan is in it, Russia is not) is mistaken on two fronts to assume that the whole world condemns Russia. Firstly, many countries (accounting for more than 50% of the world’s population) don’t and some that do are still hedging their bets on how the conflict will evolve. In reality, much of the world regards Putin as standing up for the rest against the West. Secondly, many nations resent the sanctions and what they perceive as the West’s double standards (India epitomizes this point). Gone are the days when Westerners could impose their norms, rules and values over the rest of the world. In the coming years, this profound shift of attitude will make the life of Western investors and businesses abroad (amidst ‘the rest’) much more arduous and challenging than in the past.
- The severity of economic sanctions against Russia and the US decision to weaponize the USD will accelerate the erosion of $ dominance(already an incipient trend for the past 20 years, during which the $ share of international reserves fell from 70% in the early 2000s to 59% at the end of last year). This diversification is not favouring a tripolar system composed of the dollar, euro and renminbi, but rather an increasingly fragmented one, with the currencies of smaller economies like Australia, Canada, New Zealand, Sweden, Singapore and Korea gaining ground, alongside the emergence of small currency blocks and the adoption of digital finance. Moving forward, the e-yuan will gain traction, but the renminbi won’t. Being a reserve-currency issuer requires strong political checks and balances and open financial markets.
- The warning lights of accelerating climate disruption and possible abrupt climate breakdown are flashing red. Last week, Antarctica was 40C warmer than average (the Artic 30C). These extremes can in turn trigger amplified warming and further extreme weather events. The recent “rain bomb” in Lismore (Australia) is one such canary in the climate mine: it overtopped the city’s flood levy, wreaking much physical damage. Insurance company projections point to similar occurrences in places as diverse as London, Tokyo, Hong Kong or Venice, but with far more dire financial consequences. As a result, non-coastal locations now command a premium.
- The triad of (1) climate change and environmental degradation, (2) pandemic and (3) geopolitical turmoil is accelerating the transition from “just-in-time” to “just-in-case” supply chains. Regionalisation and even “local to local” are now the name of the game. This is most obvious with food where the dual constraints of global warming and food sovereignty will shrink global supply chains whenever possible, but such a transition will extend to most industries, throwing up organizational and logistical hurdles, feeding inflation (by raising the cost of inputs) and causing asymmetric effects (the Western world will benefit from onshoring, like Intel’s decision to raise the share of US and Europe production to the detriment of Taiwan). Moving forward, resilience and security will dwarf efficiency and leanness.
- Activism is rising relentlessly in many different guises. Last week, Anonymous – the decentralised international hacktivist collective – targeted the 40 multinationals or so still present in Russia, urging them to leave or to face cyber intrusion (it subsequently leaked 10Gb of data from one company, prompting it, and others, to announce their exit from Russia). Investors and business leaders tend to underestimate the power of such phenomena which are bound to ‘explode’ in the coming years, fuelled by tech, discontent and the rage brewing under the surface in so many corners of the world.
- The USD150m wildlife conservation bond just issued by the World Bank is the first of its kind – specifically using a financial instrument for improving conservation and biodiversity. The buyers of the “Rhino bond” will not get a coupon but instead will receive a payment – the magnitude of which will be determined by the rate of growth of a population of black rhinos in two South African nature reserves. Ingenious, scalable and the way to go (like our good4nature international prize).
- For an in-depth proprietary analysis of any of the bullet points and what they mean for you – please contact us. We provide tailor-made, independent research, with insights and actionable ideas based on a rich and diverse network. Details HERE.
