The outbreak of the COVID-19 pandemic determined the start of a period of Great Transformations at the global level, in a context dominated by the high level of uncertainty and the fast speed of the technological progress (given the Digital Revolution and the Artificial Intelligence Revolution).

At present the world is searching to identify new models of economic growth and development, based on green energy, digitalisation and implementation of a policy-mix that determines the increase of the resilience to the shocks (exogenous and/or endogenous).

However, the incidence of the crisis in Ukraine determined the change of paradigm in terms of geo-political risks, delaying the post-pandemic transition processes at the global level.

Nowadays, everywhere across the world the militarisation is a top priority for many countries, as reflected the dynamics of the allocation of resources – the level of military spending / capita increased significantly in the recent years globally, to USD 322.3 in 2022 (the highest level since 1990), according to the statistics of SIPRI (as can be noticed in the following chart).

Figure 1. Military spending / capita (USD)

Source: SIPRI (Stockholm International Peace Research Institute)

Furthermore, the persistence of the military conflicts across the world may determine the continuity of arms race, Bloomberg estimating additional military spending of USD 10tn at G7 level in the next decade, if the countries move to the level of the militarisation during the Cold War.

There can be noticed the significant increase of the real military spending (nominal spending adjusted by inflation) in United States (the largest economy in the world, with a nominal GDP of almost USD 28tn at the end of 2023) over the past quarters: YoY paces of 2.5% in 1Q, 2,9% in 2Q, 5.0% in 3Q and 3.2% in 4Q 2023, according to the figures of Bureau of Economic Analysis.

In fact, the real military spending returned to positive YoY paces in 2023, following two years of adjustments.

In the transition process at the global level the role of the emerging and developing economies (Global South) is on an upward trend, given the strong growth paces in China and India (actually we live in the Asian Century).

On the other hand, the European economies are paying a higher invoice of the consequences of the recent global shocks, including the total confrontation US – China, which includes the digital one (China seems to lead the technological race, as reflected by the high level of the share of digital economy in the GDP).

Figure 2. Digital economy (% GDP)

Source: Statista (2024)

Therefore, the economic voice of the European countries at the global level has recently continued the downward trend – the share of the Eurozone GDP (the core of the European Union) in the global GDP is around 15% at present, 10pps lower than it used to be at the beginning of the 1990s, when the Treaty of Maastricht was signed.

Furthermore, the mid-run prospects for the European economies are weak, as Germany (the engine / locomotive of Europe) entered a severe adjustment mechanism, after the end of the growth model of the past three decades (based on imports of cheap oil and gas resources from Russia and exports of high value added goods on Chinese market).

The transition towards a New World Economic Order would continue, being dominated by the high risk of adjustments on the financial side of the economy in the short run and by the enlargement of the BRICS in the mid-run.

Considering the estimates of the International Monetary Fund (IMF) in nominal GDP terms the emerging economies would outpace the G7 this decade, as can be noticed in the following chart.

Figure 3. The weight in the global economy (%)

Source: International Monetary Fund database

In this transition towards a New World Economic Order new systemic shocks would occur, unless the leaders of the largest economic blocks negotiate in a similar manner happened during the Bretton Woods Conference 80 years ago.

Concluding, at present the risk of incidence of an additional shock (the currency one) is on the upside, as reflected by the upward trend of the prices of gold (very close to USD 2,500/ounce at present).

Author: Andrei RĂDULESCU, Ph.D.