Global economic outlook is fragile, characterised by deceleration, rising debt and bad demographics. Tech has some of the answers, but not without policy challenges. Similar distributional issues beset climate policy. The urgent need for AI and social media to come under regulatory scrutiny.  All important détente is not in sight.

  • A FRAGILE GLOBAL ECONOMIC OUTLOOK. Compared to last month’s murky outlook with expert opinions sharply divided, there is now clear evidence that China and Germany are decelerating. (1) China’s post-Covid economic recovery is faltering. Production, consumption, credit growth, private investment, property sales: all came below expectations, prompting fears of a ‘self-fulfilling confidence trap’. Worryingly, youth unemployment has jumped to 20%+. (2) In Europe, there are concerns that the German Q1 “winter recession” (which combined weak consumer and industrial activity) will mutate into prolonged weakness, dragging the rest of the EU down with it. Meanwhile, the US consumer continues to spend as if there were no tomorrow. Yet, the deal’s two-year cap on spending cannot fail to create headwinds for the economy.
  • DEBT SUSTAINABILITY AND GROWTH. Over the past years, rising debt has occurred all over the world, but over-indebtedness is of most concern in low- and middle-income nations: for some of which exorbitant amounts of government revenues (up to 1/3) are spent to reimburse foreign debt. About 50 of them are now so heavily indebted that they missed payments or might soon suspend debt services. Restructuring is key, but geopolitics is interfering. China – the largest bilateral creditor in emerging and developing countries – insists on certain conditions that prevent the IMF (viewed by China as a US proxy) coming to a restructuring agreement with over-indebted countries and disbursing funds. Another spanner in the works for developing countries.
  • DEMOGRAPHICS, CREDIT RATINGS AND EMPLOYMENT. Demographics are no longer a long-term consideration. Their impact is now: the world over, rapidly ageing populations equate to higher healthcare and pensions costs. Without major reforms to reduce these, there is a high risk of setting in motion a ‘doom-loop’ of greater fiscal deficits and higher borrowing costs. By 2060, a 1 percentage point increase in borrowing costs would raise the debt to GDP ratio by 40-60 percentage points for countries like Japan, Italy, the UK, and the US In such a scenario,  S&P says it would be forced to downgrade to junk half of the world’s leading economies. In addition, ageing puts downward pressure on the ‘participation rate’ (labour force / total working-age population), thus slowing economic growth and leading to a rise in the dependency ratio (dependents / total working-age population). Long-term investors: beware of countries whose population is ageing the fastest and who are ill-prepared to deal with this.
  • AI AND LABOUR MARKETS. Only tech can offer a viable solution to the negative impact of ageing on growth, with much hope that AI and automation will spur productivity (and therefore GDP). History suggests that technological progress has always been the most important driver of social and economic welfare, but there is nothing automatic about this. Tech innovation all too often comes with bad distributional effects. During the Industrial Revolution workers’ wages flattened until social movements and progressive policies rebalanced the distribution between labour and capital. The same conundrum is arising today. Capital benefits the most from technological progress to the detriment of labour. Therefore, finding the right policy tools to restore some sense of balance between capital and labour is one of today’s great policy challenges.
  • CLIMATE POLICIES AND EQUITY. Similar distributional issues beset policies aimed at decarbonization and the protection of biodiversity. These can only succeed if they are pursued in conjunction with policies that promote fairness and equity. As for AI regulation, if the social and economic implications are not fully taken into account, such policies are bound to fail. Having learnt the lesson in 2018 with the Yellow Vest backlash in France, the EU now leads the way.
  • RISKY AI. AI is proving a boon for many investors and businesses, potentially offering remarkable upsides in agriculture, healthcare, manufacturing, etc. But there is a dark side. 350 AI industry leaders and researchers just stated: “mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks such as pandemics and nuclear war.” Such a warning, coming from the people who know the technology best, must be taken seriously. The challenge: AI systems are getting ‘smarter’ at exponential rates. Meanwhile, our human brain capacity remains constant, with our collective cultural evolution and associated governance systems lagging. Apart from disinformation, the greatest risk is human groups or countries using AI for nefarious advantage.
  • SOCIAL MEDIA AND REGULATION. In the US, 95% of all teenagers are on social media, with one third reporting they use it “almost constantly”. It’s nearly as bad in much of the world. There is not yet causal ‘iron-clad’ proof that social media negatively impacts mental health, but there is plenty of circumstantial evidence that it is in aggregate a net-negative. It drives people apart and most likely contributes to the extraordinarily high rates of anxiety, depression, fragility, self-harm, and suicide that beset so many young today. The US Surgeon General just issued a ‘public health advisory’ about the risks that it poses to children, inferring that the need for regulation is becoming incontrovertible. This won’t come easily: like for the fight against obesity and the food industry, tech will fight back relentlessly.
  • NO DETENTE ON THE HORIZON. The G7 meeting that recently took place in Hiroshima brought to light the following points: (1) Western domination is a thing of the past. The world is now firmly split into two camps, with many countries deciding to multi-align depending on their economic interests (like Brazil, for which China is a more significant economic partner than the entire group of G7 countries, or the 19 countries that decided to join the five BRICS members); (2) So far, the Western world and China seem unable to find common ground to solve the most pressing issues that beset humanity. Climate change and environmental degradation; AI regulation; global financial architecture and EM debt negotiation: none of these has any chance of progress without effective global co-operation.
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