Welcome Back to the 19th Century

The global economy is getting back to normal. That does not mean a rapid return to full employment nor to a low-risk world for investors. It means that the underlying realities of globalisation are becoming clearer: ours is a multipolar world, where the technological convergence between rich nations and capable poor ones is rapid. Middle classes are expanding quickly in emerging markets – a group that politicians focus on everywhere, while ignoring recurrent protests from others, particularly low-skilled labour. The world has and will have high real economic volatility despite relative price stability. This state of affairs is, in fact, a return to the Old Normal of the late 19th century. It is a world that we can understand, even if we do not like it. In international politics, as has long been foretold, the “American century” of 1945-2000 has given way to a world where the US remains the leader but is losing dominance. So the global system is somewhere between outright conflict and smooth international governance. Reflecting this diffusion of economic and military dominance, a few major currencies – not just one – are increasingly being used for invoicing and reserve management, and that trend will only continue.