While deglobalisation is an ongoing trend, new regional alliances are emerging around the world to counter it, according to Alexander Börsch, chief economist at Deloitte Germany, speaking at the IHIF EMEA in Berlin.
Börsch told the audience that macroeconomics and geopolitics were worthy of their attention as they were “transforming how we travel”.
He went on to describe three schools of thought on the deglobalisation trend as he declared that “change makes markets”. He said: “The most popular narrative is that deglobalisation has taken hold. A second view is that ‘reglobalisation’ should be expected in the future. The third view, that of the International Monetary Fund (IMF), is that we are in an era of fragmentation.”
Results of fragmentation
The economist’s successive arguments displayed how this fragmentation was playing out, sharing “a granular and regional picture of global integration” and what it might mean for hospitality investors.
He started with evidence of how deglobalisation has taken hold, particularly since the global financial crisis, with progress “stagnating” during the global pandemic. He said that data showed that “geopolitical disalignment”, in particular, had driven the steeper declines of recent years. However, he noted that deglobalisation has different facets, and that, perhaps surprisingly, trade connection has “been pretty resilient, with last year a record year for world trade”.
Diving deeper he noted that increasing sanctions, more bilateral military agreements and lower levels of agreement in UN voting had contributed to a sense of “geopolitics becoming more hostile than it used to be”. That, in turn, has inspired the emergence of new “regional clusters”, made up of likeminded nations that intended to trade and dialogue chiefly amongst themselves.
He described four clusters of countries emerging, namely Europe, North America and its allies, Russia and the Middle East, plus a group of emerging markets linking parts of Africa, India and Southeast Asia with China. He said: “Trade amongst these economies has intensified over recent years. Trade patterns give clues on how travel patterns might evolve going forward.”
Trade corridors
He noted that “geopolitical alignment matters for Europe’s trade” but that despite the emergence of these clusters, there was hope that wider trade corridors would open up. He suggested that the likes of Japan and Korea could become very important growth markets for European exports, with Japan alone expected to expand as an export market to the tune of 4 percent by 2035. “The further diversification of trade that we are expecting could get an extra push from US trade policies,” he added, alluding to new tariffs from Donald Trump’s administration which may be applied as early as this week.
Trade diversification would be very important, he noted, in the light of some relationships declining. Chief amongst these has been geopolitical alignment with Russia, which he said had “completely collapsed”, taking with it “trade intensity”.
In conclusion, he warned that not only manufacturers but service companies such as hospitality businesses would do well to keep track of geopolitical trends in the future, as it was likely to move “not only the financial markets but also the real economy”. He said: “The time when you could neglect global trends is over.”