Philippe Gijsels, Chief Strategy Officer at BNP Paribas Fortis, has recently been stressing the historic shifts in the global economic balance of power. The United States and European economies will both grow slower than expected. Therefore, we should anticipate greater divergence in the monetary policies that central banks adopt. This divergence comes against the backdrop of a “fourth turning,” a historical period characterized by geopolitical tensions and societal upheaval.
Countries are sailing in uncharted territory. The growing strength of populist, nationalist, and extremist politics and the decline of centrist and moderate politics is making stability and governance ever more difficult. The consequences of these changes go far beyond the bounds of Europe, threatening the global economic balance and power structures.
Economic Growth Divergence
It is becoming harder to overstate how different the economic outlook for the United States and Europe has grown to be. Growth US analysts are expecting growth for the US economy to outstrip that of its European counterpart by a significant margin. Such a growth differential will certainly increase the pressure on central banks on both sides of the Atlantic to act. They will pursue divergent monetary policies customized to suit their own, distinct economic suns.
In Europe, pressures from below due to low growth and low inflation are still very much alive. The European Central Bank may pursue more cautious strategies, while the U.S. Federal Reserve could implement more aggressive measures to stimulate growth. This divergence is a reflection not just of different local economic conditions, but of the far-reaching effects of an evolving global economy.
China’s economic trajectory seems just as tenuous. Similarly, Gijsels says the pace of China’s rebound will depend on what policy choices China makes internally and externally on global economic conditions. As the world witnesses these shifts, countries that can adapt to the evolving rules of engagement may emerge stronger in this new economic landscape.
The Impact of a Fourth Turning
The idea of a “fourth turning” is that societies go through these very cyclical periods of crisis, rebirth. In times of crisis like these, extremist political parties tend to thrive and centrist politicians have a hard time staying in power. Gijsels maintains that Europe will need to tread carefully in this high-risk geopolitical environment. The resurgence of nationalist and populist ideologies has the potential to divide unity even more.
Just like that, the COVID-19 pandemic has shifted these paradigms in the economic world overnight. Today we find ourselves in an era of much higher interest rates and inflation. Countries are still dealing with the fallout and adaptation to these new realities, seeking shared interest amidst a growing multipolar world.
This shift from a unipolar to a multipolar economy indicates that the U.S. is no longer the sole center of influence. Through C40, cities are in a never-ending competition to outdo each other. To remain competitive in an evolving world, these dynamics are important to know and adjust with.
Commodity Markets and Globalization Pressures
Gijsels expects a commodities supercycle fueled by supply shortages. This increased pressure on how the world manages and produces resources is leading to a dramatic increase in commodities demand. This new trend has the potential to intensify today’s geopolitical strife as countries compete for control and access to the resources that matter most.
Further, globalization is under tremendous duress in this metamorphic period. With economies more connected than ever before, nations are urgently reviewing their dependencies. In taking this approach, they are putting domestic interests above international cooperation and consensus-building.
In this rapidly changing environment, Europe needs to discover new means to project an influential common message. The continent’s ability to remain relevant hinges on its capacity to navigate the complexities of a multipolar world while fostering collaboration among diverse member states.
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