Global economy A fundamental reset 14 | 15 Past the peak A fundamental reset Global trade (goods and services) in % of GDP 70% 60% For many years, geopolitics played a minor role in the global economic and 50% financial outlook. These were the times of stable international relations and a 40% relatively high degree of multilateral trust among countries. Though crises did occur, most of them were for financial reasons. Cracks in that world order 30% started to appear in 2017, with the first economic tensions emerging be- 20% tween the USA and China on tariffs and trade under former US President 10% Donald Trump. Under US President Joe Biden, rivalries evolved to confronta- tions involving more sectors and regions, which came to a head in 2022 with 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 the war in Ukraine. Last data point 2021 Source Haver Analytics, Credit Suisse In hindsight, 2022 marks the year when geopolitics After decades of growth in global trade as a share of took center stage once again, not only significantly global gross domestic product (GDP), the volume of impacting the global economy and financial markets, goods and services exchanged as a percentage of Out with the old monetary regime This has prompted us to increase our forecasts for but resetting international relations and commerce GDP peaked in 2008 and has fluctuated in a range 2022 also marked the end of “lowflation,” a side central bank policy rates in all major economies for many years to come. This has implications for between 50% and 60% ever since. The COVID-19 effect of globalization. Indeed, COVID-related except China. We now expect the fastest pace of short-, medium- and long-term growth, price pandemic and, more recently, political sanctions, disruptions of global supply chains, more decisive tightening on a 12-month basis and of the largest prospects and monetary and fiscal policy, potentially have forced companies to prioritize supply chain climate policy action and a full-fledged energy crisis magnitude globally since 1979. Although we expect leading to sizable shifts in the global monetary resilience over prices since 2020, which has changed and food price shock in the wake of the Ukraine war the pace of tightening to peak by end-2022, we do system with reverberations in financial markets. trade flows substantially. International trade is now led to a new regime of elevated inflation. Not only not forecast any developed market central bank to reorganizing in closer alignment with geo political did volatile energy and food prices drive up headline cut interest rates in 2023, as they are focused on New world order alliances, and a shift toward repatriation and domes- inflation, but wage increases also allowed less actual rather than expected inflation. The world of multilateralism and strong mutual trust tic development has started for strategic sectors. We volatile price categories like travel, hospitality and between countries and governments came to an believe this trend will continue for at least the next medical services to rise, lifting core inflation to end – or at the very least paused – in 2022. Deep 2–5 years until potential political change in various multi-decade highs. and persistent fractures emerged in the geopolitical parts of the world may bring a different political and world order, giving rise to a multipolar world that we economic agenda in focus again. Central banks saw themselves forced to tighten believe is likely to last for years. The global West monetary policy in bigger increments and more (Western developed countries and allies) has drifted swiftly than expected, thus ending the phase of low away from the global East (China, Russia and allies) or even negative interest rates. Although we believe in terms of core strategic interests, while the global inflation is peaking in most countries as a result of South (Brazil, Russia, India and China and most decisive monetary policy action, central banks are developing countries) is reorganizing to pursue its signaling that they need to hike rates further to own interests. reduce demand and create slack in labor markets. One reason for this is that price increases have broadened from a limited group of supply shocks to widespread inflation. Crucially, tight labor markets and higher wage growth risk making broader inflation persistent.