The Next Five Years

  • Economic Themes for the Next Five Years

We’re going through a medium-range strategic planning process here at the bank. In support of that effort, I was asked to project a broad range of global variables, with perfect precision, through 2024. No pressure.

Forecasting over short intervals is hazardous; forecasting over long horizons is folly. But I can predict with some certainty that the following themes will have a significant influence on economic outcomes in the years ahead.

1. Fraying Ties

As a number of countries become more nationalistic, globalization is on the run. Protectionist measures are rising, and support for international cooperatives like the International Monetary Fund, the World Trade Organization and the European Union has dwindled.

Any reversal of the gains derived from globalization could threaten economic growth and market progress. And without sufficient support, the organizations charged with keeping the international peace (social and economic) cannot fulfill their missions.

Ten years ago, we saw the downside of international linkages. Financial trouble that originated in the United States spread further and more widely than anyone anticipated. The resulting global downturn led individual countries to view economic relationships with other nations less favorably, and to take steps to protect themselves.

Adding fuel to this trend has been an uneven recovery. While overall growth and market performance has been impressive, some countries (and communities within countries) have not prospered. Growing income inequality has provided fertile ground for populism and the nationalist candidates that feed on it. The political middle has not been able to hold, and leaders who defended globalization have been pushed aside.

Economic Pangea has continued in spite of the cautionary tale provided by Brexit. Two years ago, many U.K. voters may not have appreciated how difficult divorce from the EU would be. But public opinion is visceral, and opportunistic politicians chose to inflame anti-EU passions. In the process, facts supporting trade have been trampled.