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Many economists are currently talking about deglobalization or even the end of globalization, caused or accelerated by the corona crisis. Of course, such a development cannot be ruled out completely. But I do not think this is the most probable alternative or scenario.

Globalization will look differently

My view is rather that globalization will change style, also affecting conditions for emerging market countries. Western dependence on production of (intermediate) goods in certain (emerging) countries will reanimate globalization at some point in the future, probably when the corona crisis more or less is over. Some of these reviving forces are briefly summarized below.

Global competition will remain in place.
It is hard or impossible to imagine that costs and prices will become irrelevant for companies in Western companies. Price competition will remain in place but may partly get a somewhat modified shape by giving goods and services a more environmental and ethical touch than so far. 

EU- and other OECD-countries are also part of globalization.
As indicated above, there will happen some geographical shift of production and purchases from countries with obvious major institutional shortcomings to countries with acceptable or good transparency and ethical standards. EU countries are certainly part of this second group. Also trade within the EU area contributes to globalization as long as the EU clearly supports free trade all over globe. We also know that the U.S. five years from now at the latest will have another president, possibly or probably applying less protectionism. The current number of countries with deeply and broadly rooted negative nationalism is not overwhelmingly high.

Reasonable institutions will favor certain emerging countries.
Emerging countries with reasonable institutions and transparency may benefit from future revised corporate purchasing processes in advanced countries. Not all goods or services can be redirected for production to (Western) home countries or to friendly-minded neighboring countries. This outlook will favor transparent and well-performing emerging countries and may give a (new) chance to historically lagging but in the meanwhile reform-minded emerging economies.

The environment, digitalization and virology will remain global issues.
In my view, it is hard to believe that improvements of the environment will disappear once the corona pandemic is over. This issue has to be set in a global context and can only be combatted successfully on two levels, the national and the global level. I also see digitalization as a global development in the future, maybe even more than it would have been without covid-19. Last but not least, the fight against epidemic and pandemic crises needs even much more future global readiness, co-operation and research.

Financial markets will continue to drive globalization.
Will financial markets work for less globalization or even the end of globalization? Nobody would believe in such a scenario because it would assume completely new conditions on earth. What could that be? I do not find a plausible answer.

Young people want to have a global lifestyle also in the future.
This last point contains both expectation and hope. Continued global lifestyle means continued global traveling, fashion, music and appreciation for internationally oriented jobs. The really nationalist political leaders will sooner or later be replaced by younger people who hopefully find it worthwhile to think and act globally. I think this will happen. But there are, of course, also impediments for such a positive development – impediments that the young or younger generations hopefully wants to get rid off.

Conclusion

There is quite a number of reasons that can explain that globalization will not come to an end as many economists believe these days. However, globalization will look quite differently in the future. All the environmental challenges and digitalization will remain very important driving forces. Quite a number of emerging markets certainly will have to redefine their role in the global economy. This includes for success more focus on transparency, ethics and other institutional standards. Future-oriented emerging markets will recognize this new opportunity.

Finally, this may even lead to a new positive wave of globalization.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
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Dear reader,

today I have the pleasure to introduce an article of my appreciated colleague Gerhard Stahl – an economist with a lot of experience from the EU and currently also from his work as a professor in China.

Having a brief comment on the article of professor Stahl from Peking University HSBC Business School I may add that there are pros and cons about a potential introduction of European corona bonds, also when it comes to the future of globalization and of China in the world economy. Particularly, I ask myself whether globalization really persistently will lose momentum or will globalization just change focus and/or add other areas of global importance to current globalization.

Read on! Enjoy!
Hubert Fromlet

Read the whole article by professor Stahl

China noted a relatively sharp GDP decline by 6.8 percent in the first quarter of 2020 (year on year) and by 9.8 percent compared to the previous quarter. This is line with average expectations which, however, had a very broad range of numerical forecasts. If traditional overestimation is assumed in those numbers, reality could even have been somewhat worse. However, the next quarter – when people to a high extent have come to work – will give some more clarification. Anyway, the official growth objective for 2020 at around 6 percent cannot be met anymore. It should be added that there is no way to make a reasonable GDP forecast for 2020 at this very moment.

Compared to my previous scenarios it may be said that the third V-curve scenario (see below) may be in line with the official numbers for Q1. China may still go for a V curve – but for a somewhat milder one compared to the toughest alternative that included both a very sharp downturn and a very strong recovery later this year.

GDP statistics for q1 may still open for politically acceptable growth numbers when coming close to the important 100-year anniversary of the Communist Party next year (if a second corona wave can be avoided).

Some background considerations

For the first time since quite some time ago, a quarterly change of Chinese GDP was not predictable for q1. The effects of the corona virus on demand and production did not allow for any plausible “guesstimate”. As indicated earlier in this blog, I assumed that the q1 number for China’s GDP would be partly politically set – with two or perhaps three options (see my blog chinaresearch.se from March 25 and April 14).

My theory that GDP growth to a considerable extent would be politically determined receives probably momentum also during 2020, the year before the 100-year anniversary of the Communist Party. Chinese political leaders would certainly dislike a weak economic development also later in 2020 and in 2021 – despite the corona excuse. This argument certainly urges for a relatively nice economic recovery starting at least in the latter part of 2020 or in the beginning of next year. Will it work?

In this context, my first option in previous publications was a relative sharp downturn in q1 and perhaps also in q2 – but then followed by a relative strong recovery, something like a short-lived and steep V curve. My second option was still a V curve – but less deep and steep and also somewhat more extended than in the first option. A third option could turn out be a forthcoming GDP curve between these first two V curves – but not really recognizable as an alternative on its own. This version may have been indicated today by the official 6.6-percent drop in q1.

One conclusion, however, can be made already today: The analysis of China’s GDP development in q1 should not be exaggerated. Circumstances were simply too special.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

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