Globalisation will not unravel but it will evolve, in our view. We see a wide spectrum of possible outcomes. The most likely scenario is a multi-polar world in which trading blocs become more politically aligned. Overall, the global economy could become less efficient.
Precisely how globalisation evolves will likely depend on the role of innovation and automation, demand growth in new markets, as well as rising (or declining) nationalism and shifts in regulation on climate, taxes, and data.
There will be winners and losers by geography and industry. For example:
- Low-wage economies that have derived the greatest benefit of decades of globalisation appear at greatest risk. Those yet to partake in export-led growth may see development curtailed.
- Greater regionalisation as supply chains persify and production moves closer to demand would benefit Asia and an increasingly wealthy consumer base.
Services sector takes the lead
As globalisation evolves, trade intensity in goods will likely decline. But services could flourish in a global economy that is more virtual. Services industries should benefit from investment in skilled labour and labour-saving technologies. Economies such as India and the Philippines, with large populations of English speakers and established infrastructure, may also benefit and attract more foreign capital.
While regulations may tighten on the technology sector broadly, certain technology companies will benefit from new demands. The rise of “digital sovereignty” as a national security issue likely means increased spending on cybersecurity. Even before the Russian invasion of Ukraine, it was estimated that cybersecurity spending would surpass USD 200 billion by 2024, up 43% from 2021.
As the threat and costliness of security breaches worsen, companies and governments are highly incentivised to invest in protection. Similarly, defence sectors could benefit from a more tense and fragmented world.
Meanwhile, robotics and automation should become increasingly important and cheaper as replacements for workers, and as access to low-wage labour becomes more limited. We anticipate this trend continuing as aging demographics in developed countries further strains the labour supply and production shifts location to serve growth in new markets.
China’s shifting roles and relationships
What role will China play in the evolution of globalisation?
China seems increasingly at risk of reduced trade with the rest of the world following a series of U.S. and European government actions aimed at regulating and curbing reliance on China. In such a scenario, other economies may see benefits. The rise in Chinese wages has already helped the wider Asian region as production has moved to relatively lower-cost markets close to the source of final demand.
The shift to greater supply chain persification could accelerate this trend, especially for manufacturers of consumer products such as textiles and technology hardware. It could also support infrastructure investment.
Investors adapt to change
The global economy has clearly benefited from 70 years of rising globalisation. We expect a reconfiguration ahead, rather than a reversal. It will be a disruptive environment in many ways, with new opportunities and risks as investors adapt and respond to change.
