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Businesses and consumers, as well as financial and capital markets, must prepare for a split in the global economy that will bring tangible losses in prosperity. In a scenario of global systemic conflict, disruptions in global value chains and a trend toward rising commodity prices are to be expected in the long term. The Ukraine war and the sharp increase in inflation are the first visible manifestations of these adverse changes. These are key findings of a prominent expert discussion hosted by FERI. "Declining profits from global trade as well as rising costs for new security architectures and a changed energy infrastructure threaten our previous prosperity on several levels," said Dr. Heinz-Werner Rapp, board member and chief investment officer of FERI.
Industrialized nations like Germany, which are heavily involved in global division of labor and trade, would be particularly affected by a further decoupling of the global economy, he said. "Germany must restructure its export-oriented and energy-intensive economic model and coordinate more closely than before at the European level in the future," said Prof. Clemens Fuest, president of the Ifo Institute. "The pressure for Germany to clearly follow the U.S. line in relation to its most important trading partner, China, is also likely to increase." Currently, the development of inflation is a cause for great concern, he said. According to the joint diagnosis of the leading economic institutes, the inflation rate in Germany will be around 6.1% in 2022. Should gas imports from Russia fail, there is even a threat of an inflation rate of 7.3%. "The ECB must fight inflation with all its might. It is high time to end the expansionary monetary policy," Fuest said. To alleviate the rising burden of inflation on consumers, he said, targeted income subsidies should be favored over subsidies to lower energy prices.
The question of how globalization will proceed in the future was also discussed at the FERI event. After intense international cooperation over the past 30 years led by the United States, the current conflict with Russia is accelerating the formation of large power blocs that are increasingly hostile to each other, he said. "The real threat lies in the fact that with China and Russia, two authoritarian great powers are aiming to weaken the West," said Prof. Sebastian Heilmann, holder of the Chair of Politics and Economics of China at the University of Trier. As a result, he said, the world economy will no longer be globally integrated, unlike in the past, but will be divided into regional spheres of influence. China has been acting increasingly aggressively of late, he said, as it finds itself in a fierce race with the United States. "The Silk Road Initiative and the open threats against Japan and Taiwan underline China's ambitions to return to historical greatness and global importance. There is some potential for conflict here, which in the worst case could also lead to military escalation," Heilmann said.
The participants agreed that the global economy is in the midst of a geo-economic turning point. "The current decade is marked by massive upheavals. This brings with it major strategic challenges for entrepreneurs and investors, but also generates new social and political risks," said FERI CIO Dr. Rapp. Investors should respond to this in the future with more robust multi-asset portfolios, according to a key finding of the expert panel.
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