Key Takeaways
- Global economy has entered a new era of the “Old Normal”.
- Five structural forces will shape the global investment landscape.
- Policymakers must rebuild trade via sectoral free trade zones.
- Private sector to play a key role as economic security becomes key asset.
For three decades after the fall of the Berlin Wall, investors thrived in a period called the “Great Moderation”: an era of improving fiscal discipline, declining inflation, and expanding global trade. That chapter is over; we have returned to a historical baseline defined by fragmentation, competition, and shocks marked by five structural forces.
Geopolitics
Geopolitical rivalry has intensified to the highest levels in at least 30 years. As a result, we are now in an age of economic warfare. Consider this: since 2000, the number of sanctioned entities worldwide has increased ten-fold while trade restrictions have quintupled in the last five years alone. Economic statecraft is now a central pillar of grand strategy and will continue to produce more barriers, lower efficiency, and higher inflation.
Fiscal
Geopolitical rivalry is driving record defence spending and industrial policy, leaving most major economies on track to run historically high deficits through the decade. As political authorities demand low borrowing costs to fund their strategic priorities, monetary policy will be subordinated to fiscal imperatives - with obvious implications for inflation-fighting credibility and interest rates.
Industrial Policy
Governments are deploying every tool in the toolkit to align private sector incentives with strategic interests. For example, industrial policy interventions are up about eight times since 2008. The strategic goals are clear: supply chain resilience or dominance, energy security and technological pre-eminence, among others. But achieving strategic returns carries an economic price in the form of fiscal costs and the potential for reduced competition and innovation.
Energy Demand
Driven by the thirst of Artificial Intelligence, electrification and the rise of a global middle class, energy demand is set to jump exponentially while supply is held back by a maze of bottlenecks. This sets the stage for chronic shortfalls and the weaponisation of chokepoints that range from minerals processing to oil shipping routes. Therefore, the era of energy insecurity is here to stay.
Technological Race
We have entered a high stakes contest to control the commanding heights of technologies that are foundational for both economic growth and global balance of power. The scale of the AI capex surge already makes it one the largest investment booms in global financial history, surpassed in size only by the railroad buildout in the nineteenth century.
This era signals higher long-term rates, steeper yield curves, gradual non-dollar strength, and equity bull markets interrupted by sharp reversals. While reminiscent of the 1870–1914’s globalisation wave and upheaval, today’s outlook is less dire.
Policymakers need a doctrine for economic force, defining principles for its use, and a playbook for positive-sum statecraft - clear objectives, remedies for market failures, partner leverage, strategic metrics, and exit plans. Neither hyper-globalisation nor autarky works; rebuilding trade from the middle via sectoral free trade zones is key. Finally, the private sector must play a leading role as economic security is now an asset class and a generational opportunity.
In conclusion, while the “Old Normal” is back, its trajectory depends on our choices to shape a more resilient future.
Daleep Singh
Vice Chair and Chief Global Economist
