The previous global economic order, namely “the Washington consensus,” is behind us as geopolitics and security increasingly shape economic decision-making, S&P Global Ratings’ chief economist said.
Speaking to Anadolu on the sidelines of the World Economic Forum in Davos, Paul Gruenwald said trust in institutions, countries and companies has emerged as a central theme this year as nations and firms adjust to shifting supply chains, trade routes and financial conditions.
“I think the old system, which was based on the idea that markets are good, free trade is good, free flow of capital is good, (a) kind of a borderless world (…) Now we have a lot of security and geopolitical concerns that are overriding trade,” he said.
Gruenwald said the global economy is searching for a new framework, but the transition is complex.
“We’re trying to find a new order, but I think navigating those risks, building in redundancies, being more opportunistic in who we’re partnering with, hedging our exposures—those are some of the big things. (…) The old order was kind of underwritten by the US as the benevolent hegemon, and I think that role is evolving,” he added.
Rather than a unified system, Gruenwald said the future is likely to be fragmented. He cited remarks by Canadian Prime Minister Mark Carney in Davos calling for middle powers to play a greater role.
The new order, he said, “will not be a seamless global order,” but “a patchwork of different combinations depending on the issue,” whether in trade, security or other areas, even as some countries seek to preserve elements of the old system.
He added that geopolitical and security concerns are now decisive economic forces, including in the US, where the government has taken a more active role in influencing corporate behavior.
In this environment, Gruenwald said, “it is no longer sufficient to just be a strong macroeconomist.”
“We all need to be multidisciplinary—we have to think about geopolitics, we have to think about energy, and we have to think about credit markets and unconventional sorts of ways the financial system works,” he said, adding that specialization alone is no longer enough.
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