The global economy is in the grip of multiple crises. While the financial and economic crisis, the euro crisis, and the Greek debt crisis were largely economic in nature, strife between Russia and Ukraine, conflicts in the Middle East, and the refugee crisis now present broader political challenges. Proliferating terrorist attacks endanger not only the staff of our companies, but also production facilities and transport routes. All these factors amount to growing uncertainty for our businesses: for trade, for investment, and for the movement of capital.
Political Tensions Leave Deep Marks in the Economy
A number of these political tensions have already left deep marks in the economy, for example in the shape of an oil price that has become increasingly untethered from market forces. It also impacts inflation trends. Diplomatic tensions hamper trade with Russia. And these factors are exacerbated by domestic developments with economic impact in certain countries. Mismanagement in the implementation of China’s reform strategy has created overcapacity for example in the steel sector. Exports at dumping prices are the consequence. Although Europe and the United States are gradually recovering in economic terms, they are experiencing political centrifugal forces of hitherto unknown dimensions. Brazil’s economic recovery is also disrupted by political tensions. On both sides of the Atlantic there are growing audiences for extreme political positions. This calls into question the liberalisation of markets, and can also harm investors’ confidence in these locations.
Governments must act to prevent political conflicts spilling over into trade, investment, and movement of capital. In recent years, however, there has been a disillusionment concerning the possibilities of politics, for example the power of monetary policy, the possibilities of financial policy, and the implementation of structural reforms. Hopes of lasting global growth and an economic miracle in the BRICS have also been dashed.
Withdrawal from Globalisation Cannot Be the Response
The response to growing uncertainty cannot be to withdraw from globalisation and renationalise value networks. Instead, political crises and disillusionment about the politically possible mean that globally-orientated German industry must keep a firm eye on global change. We must think about the consequences of political developments for our business models – regardless of where they occur. The response of our companies must be to enhance the robustness of our business models, for example by diversifying our markets. The increasing digitalisation of value networks also allows better responses to supply disruption and demand weakness.
More generally, we need to draw up a broad political reform agenda for strengthening German competitiveness in order to respond appropriately to global changes. We must also participate more strongly in multilateral forums like the G7, the G20, the OECD, and the WTO, for the global challenges can only be tackled successfully through international cooperation. Germany’s G20 presidency in 2017 offers promising opportunities to shape such a reform agenda. BDI, which together with DIHK and BDA assumes the presidency of the accompanying B20 process, will grasp this opportunity to set a trend for greater security in the global economy.