Global economy becomes less efficient

According to the report, EBC Financial Group’s Christopher Stiegeler suggests that increasing geopolitical uncertainty may be causing a fundamental transformation in globalization, potentially leading to a global economy that is less efficient but more resilient.

Stiegeler notes that traditional globalization involves moving goods from one part of the world to another to sell them at a higher price, but this approach may no longer be commercially viable due to rising costs and risks.

Suppliers will need to factor in larger inventories and increased insurance costs, which will ultimately be passed on to consumers, making the global economy less efficient.

This shift could also make the global economy more resilient, as companies begin to prioritize reliability and stability over cost savings.

Stiegeler points out that markets are already reflecting this change, with currency volatility, increased insurance costs, and freight costs rising in response to geopolitical events.

Companies are starting to ask themselves whether they want the cheapest supplier or a reliable one, indicating a fundamental change in how they think about efficiency and pricing.

The report states that companies are responding to this shift by pricing in geopolitical risk and considering the reliability of their suppliers and routes.

This change in approach is driven by the realization that geopolitical events are no longer temporary shocks, but rather a new normal that companies must adapt to.

As a result, companies are reevaluating their supply chains and prioritizing stability and reliability over cost savings, which could lead to a more resilient global economy.

According to Stiegeler, this change is important because it indicates that companies and markets are adapting to a new reality, one in which geopolitical risk is a permanent feature of the global economy.

They are recognizing that the benefits of cheaper goods may be outweighed by the risks associated with geopolitical uncertainty.