Understanding the New Global Economy
LONDON – As the world becomes more volatile and confusing, policymakers, business leaders, and investors will need to reconsider the mental models they use to analyze the global economy. Specifically, they will need to pay attention to three structural dynamics that are altering the international landscape and creating a more fragmented and compartmentalized world: capital flows, demographic changes, and political ideologies.
Changes in capital flows are largely driven by regulatory requirements (for example, US restrictions on investment in China) and investors' search for more profitable opportunities in different sectors and regions. Today, the United States accounts for nearly 70% of global stock market capitalization and attracts more than 70% of flows into a $13 trillion global market for private investment (in equities and credit). This holds true despite the recent sell-off in securities. The US stock market is the best place for investors to generate attractive returns because the United States is a world leader in innovation, with large, liquid, and deep capital markets.
But global debt has reached 237% of global GDP, raising concerns about the holdings of outstanding liabilities and the degree of hidden leverage in the international financial system. The United States government alone owes $36 trillion (124% of GDP), and the creditor of a significant portion of these liabilities is China, a country with which it has a tense relationship.
Furthermore, hidden leverage and debt from the shadow banking sector can become a problem. According to S&P Global, at the end of 2022, shadow banking held $63 trillion in financial assets (78% of global GDP). A more detailed analysis also shows that in 2024, shadow banking accounted for 70% of mortgage originations and leveraged loans in the United States. Investors and business leaders will have to ask themselves who owns what debt, and where the debt obligations and major concentrations of financial leverage are.
The second major concern relates to demographics. The world's population continues to grow rapidly: the United Nations estimates that by 2100 there will be 11.2 billion people (the current figure is 8.1 billion). Nearly 90% of the world's population lives in poor emerging markets, and population growth in the regions with the poorest economies (for example, Africa, India, and the Middle East) is projected to equal or exceed the replacement rate of 2.1 children per woman. This means that in these regions, the population will become increasingly younger. In Africa, between 50% and 60% of the population is under 25 years old (in the OECD, it is only 20%).
At the same time, other countries are aging rapidly and experiencing lower birth rates; forecasts for Europe and China point to significant population declines. According to Eurostat, the European Union's population will peak at 453.3 million in 2026, before gradually declining to 419.5 million in 2100. And UN data suggests that China's population will fall to less than 800 million by 2100, from the current 1.4 billion.
These trends have far-reaching implications for global demand and production of a wide range of commodities, such as food and energy. For example, India, with a large and poor population, remains heavily dependent on coal and other fossil fuels rather than renewable energy sources.
Demographic changes will also alter financial portfolios, as aging populations shift from capitalists (willing to take risks) to rentiers (seeking fixed, stable, and predictable income). But markets will also have to be calibrated in response to a massive intergenerational transfer of wealth from baby boomers to millennials. Cerulli Associates estimates that this figure could reach $84 trillion by 2045.
Finally, we must consider the ideological divisions between countries and regions. The market is already pricing in the breakdown of multilateralism and the fragmentation of trade, capital flows, migration, and ideas, and political and business leaders will have to take these trends into account. The largest US multinationals continue to generate more than half of their revenue outside the United States. But now they must analyze how the weakening of traditional US trade alliances and relationships affects them.
On a more general level, deglobalization has forced companies to further centralize the purchasing, contracting, and trading of goods and services. It also jeopardizes carry trades (borrowing at low interest rates in New York and London to invest in more profitable regions) and makes it difficult to repatriate profits.
In the short term, the Trump administration's tariffs and deportations could impact wages and generate further inflation in consumer goods, wages, and prices across all sectors. Furthermore, rising inflation is likely to put upward pressure on the cost of capital, which could translate into a repression of business investment. And in the long term, deglobalization and technological advances (e.g., artificial intelligence and quantum computing) will reinforce current ideological divisions.
Geopolitical fissures have already generated important political questions. There is a debate about the relationship between state capitalism and market capitalism, and about the reconfiguration of alliances and groupings of countries. New blocs such as the BRICS+ are competing for global influence and trying to circumvent traditional multilateral institutions. The countries in this group already represent 45% of the world's population and 35% of GDP, and they play an increasingly important role in setting prices and in the international trade of many goods and commodities. These developments hamper the international alignment of countries and create obstacles even for initiatives that were previously applauded (for example, the United Nations Climate Change Conferences).
Along with the slowdown in global growth, trade, finance, religion, energy, AI, and immigration are being aggressively manipulated, generating a level of complexity that will make it more difficult to predict policy outcomes. In practice, the added complexity and loss of visibility are likely to narrow the time horizons for crucial decisions about the allocation of capital and human resources.
Instead of planning for five years (the generally accepted length of the economic or business cycle), investors, entrepreneurs, and officials will have to think more about the next eighteen months. In such a volatile environment, decision-makers will have to focus on adaptability. No one can commit to long-term strategies based on regulatory, geopolitical, or economic conditions that can change overnight.
Translation: Esteban Flamini
The author
Dambisa Moyo, an international economist, is the author of four New York Times bestselling books, including Edge of Chaos: Why Democracy Is Failing to Deliver Economic Growth – and How to Fix It (Basic Books, 2018).
Copyright: Project Syndicate, 1995 - 2025
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