Despite the current geopolitical and economic clouds, a sunnier outlook is feasible, delegates heard at the IHIF EMEA in Berlin on Monday.
An opening address from international broadcast journalist Monika Jones reflected on the history of the German capital, and its journey from Cold War victim to a contemporary success story. “Any crisis, however dark, doesn’t last forever,” she said.
Continuing the theme of optimism, Janan Ganesh, associate editor, Financial Times, encouraged delegates to look beyond the present volatility in the Middle East, expressing hope in a calmer future. He drew comparisons with the spring of 2016, when it looked like “the world could not have been more stable”, yet shocks like Brexit and populism were just round the corner. “We are now in an exact opposite situation,” he said. “The world looks volatile, but dig under the surface and there are reasons to believe that the world will be stable in a couple of years.”
Lessons from Russia
The reasons for this, he explained, included “the Russian experience in Ukraine” which had effectively “discouraged other countries in the world from attempting something similar”. Those taking lessons from Russia included China, he said, with a diplomatic consensus emerging that the country’s government would not risk the failure of a drawn-out conflict or becoming an international pariah through military action. “What Russia has done is give the world its periodic reminder of how difficult a land war is,” he said.
A second reason to be cheerful about the geopolitical outlook was Europe’s growth prospects, he added. In defence terms, he noted that Germany is close to becoming the world’s third largest military spender, with its defensive position about to be “backed up by a significant amount of hardware”. With Sweden and Finland now in NATO, and defence budgets from the Baltics eastwards rising, including French nuclear rearmament, Europe will ultimately have “more clout” on the world stage, he said. Despite Brexit having raised the spectre of copy-cat European exits, they hadn’t happened and were less and less likely to, with countries such as Iceland rather knocking on the EU’s door. “Even the UK will have a radically closer relationship with the EU in the next decade,” he predicted, while remaining sceptical about the idea of a full “rejoin”.
Legacy issues
Ganesh offered a third motive for optimism as he sketched a picture of the current cohort of world leaders as “men in their seventies who are looking to leave a legacy behind”. From leaders such as US president Donald Trump to Benjamin Netanyahu, prime minister of Israel, a shared drive for “territorial expansion” could be characterised as “backward looking”, he said. He felt it likely that the next generation of world leaders were unlikely to be as “volatile and unpredictable” and indeed might approach international relations in more “conciliatory” mood. He quipped that he was looking forward to that “staff turnover”.
Robin Winkler, chief German economist, Deutsche Bank, picked up on the sentiment theme to share some balanced predictions about global economic growth and employment trends. While starting with the tremors caused by the current conflict in the Middle East, he drew parallels with previous oil price crises without entirely catastrophising. He did warn, however, that even if the conflict is resolved quickly, oil price movements and depressed “animal spirits” may be “enough to derail global economic growth”. Looking at the current scenario, he noted that “central banks are already talking about hiking interest rates again as they are worried about inflation shocks”, flagging the fact that when “inflation expectations become unanchored”, they can translate into inflationary drivers such as higher wage demands.
AI and labour
A second topic worth examining, he said, was the rise and rise of artificial intelligence (AI). Colleagues at Deutsche Bank had been tracking rising levels of disruption to global business models, while the Federal Reserve Bank of Dallas had produced an altogether more apocalyptic model which predicted that AI would “either quadruple the economy, or drive us to extinction”, he said. Even if large language models (LLMs) somewhat stagnate, but their use moves into the mainstream, it will have a significant economic impact, he added, which would be mostly positive. “It would be a fourth industrial revolution,” he said, giving a much-needed boost to the west, which “hasn’t had a breakthrough for a few decades”.
“Will it lead to high levels of unemployment? We think that’s a myth,” he added. “We don’t see high unemployment linked to technological breakthrough over the centuries – it’s rather linked to economic downturns.” However, he warned of a potential downward impact on wages. “There’s a big gap between economic growth and wage growth in the US and Europe, with the labour share of national income in the US now at the lowest point since World War Two.” The result could be a social push for better wages, he warned, with consequences for overall inflation.