By “fragmentation” they refer to a breakdown of the type of free movement, transboundary trade and investment that has defined the global economic order over the past three decades. This is a form of globalization – building fences around national or regional fiefdoms.
“Fragmentation is the feeling that economies may have a little more protection for themselves locally, and that could slow things down,” said Josh Lipsky, director of the Atlantic Council’s Center for GeoEconomy. “And then in turn it can make things more expensive.”
Of course, this is not a new issue – more than two years ago, supply chain turmoil was turbocharged with the onset of the pandemic – but the war in Ukraine, growing political divisions and ongoing trade disputes are renewing concerns about a return to a new era. insulation.
“Both business and government choices are expected to create a perfect storm of volatility and uncertainty, leading to further fragmentation in the global economy and unprecedented shifts in supply chains,” wrote a group of chief economists polled by the World Economic Forum. “These models are expected to create more difficult trade-offs and options for policymakers and – without further coordination – create shocking human costs.”
Before the Davos crowd got a chance to experience their first happy hour of the week, the world got a glimpse of the micro-tracks playing in real time.
Chinese ride-hailing giant Didi has officially removed its shares from the NYSE, shrinking its once-large global ambitions.
- Starbucks withdraws from RussiaAfter the last week of McDonald’s continues the mass corporate migration over the war in Ukraine.
- Russia’s foreign minister said the West has assumed a “dictatorship position” and that Moscow should strengthen its ties with China.
- Airbnb says it will remove all its listings in ChinaHe referred to “costly and complex” operating restrictions linked to Covid-19 quarantines.
- Malaysia took action to restrict chicken exports to its neighbors, saying “the government’s priority is our own people”.
Xiaomeng Lu, director of geo-technology at Eurasia Group, says Chinese telecom giant Huawei is another outstanding example of how political poles are contributing to the disintegration. “There’s definitely a trust issue for companies from both China and the US… You can see Microsoft slowly scaling their Chinese apps as well.”
Take a step back: Fragmentation isn’t just about trade. It’s also about finance and the supremacy of the US dollar.
“Given the punitive measures taken by the West against Russia, there is serious talk of reducing reliance on the dollar in some economies, including China,” Lipsky said.
The West has become accustomed to the dominance of the dollar, and investors should be aware that a shift is underway. The dollar continues to circulate the world on Western-controlled networks like SWIFT, but digital currencies may finally offer an alternative.
To be clear: It won’t happen overnight.
“These supply chains have been built for over 30 years, so you can’t move them to another country,” Lipsky says. “Revisit Davos in 10 years and see how different the global economic system is. That doesn’t mean there is no desire to change, but it’s actually much more complicated to do.”
A gloomy meeting
Here is Julia Horowitz, lead author of Before the Bell, with a post from Davos, Switzerland, where she reports on the World Economic Forum.
Old friends and acquaintances meet in the corridors and on the street. There are handshakes, handshakes, questioning of children and spouses. Many had not traveled for business in years and added an air of happy reunion to the event.
“Davos is all about creating a better future. That’s what we need to talk about here today. Instead, we need to talk about the cost and consequences of the war that Putin has chosen,” European Commission President Ursula von der Leyen said in a keynote speech. said. speaking to the participants.
He criticized Russia’s weaponization of its energy supply and warned of an impending food crisis as Russian troops prevented significant grain shipments from leaving the country, claiming Moscow was “using hunger and grain to use power”.
“Global wheat prices are rising rapidly and it is fragile countries and vulnerable populations that suffer the most,” von der Leyen said.
Meanwhile, business leaders talk about the state of the world with less bullying, acknowledging that there is so much they can’t control right now.
After a panel on sustainability, Unilever’s CEO, Alan Jope, said that inflation is making his life “difficult”, despite the consumer goods giant’s “confidence in its fundamental performance”.
He said he is concerned about the burden inflation will place on people around the world, especially those on the socioeconomic spectrum who are least able to meet the incoming inflationary pressures.
Unilever, which makes Ben & Jerry’s ice cream and Dove soap, hiked prices 8% last quarter and said it should continue to raise prices “thoughtfully” to account for rising agricultural product and fuel costs.
On the radar: Unilever investor Terry Smith made waves earlier this year when he criticized the company’s focus on “sustainability references”, which he said came at the expense of the public “at the expense of focusing on the fundamentals of the business.”
“A company that, in our view, felt it needed to define the purpose of Hellmann’s mayonnaise had clearly lost its plan,” Smith said.
Jope told me that investors like Smith “have the right to have their own opinions”, but the “overwhelming majority feeling” is that Unilever should stay on course. “I understand Terry’s frustration at the time, but I don’t think it was the majority opinion of our investor base,” Jope said.
Snap going to the rally?
Late on Monday, Snap Inc. issued a surprise warning in a regulatory filing, saying that “the macroeconomic environment has deteriorated more and faster than expected” last month. The social media company lowered its quarterly forecast, triggering after-hours sales.
Snap shares fell 30% in pre-market trading, bringing the entire industry down with it. Facebook parent Meta fell 7% and Pinterest fell 11%. Alphabet was down 3.6% and Amazon 2.2%. The tech-heavy Nasdaq Composite is unsurprisingly down nearly 2% after ending Monday’s gains of 1.6%.
Snap CEO Evan Spiegel said in a note to staff that the company will slow hiring for this year, revealing a broad list of issues.
“Like many companies, we continue to face rising inflation and interest rates, supply chain shortages and workforce cuts, platform policy changes, the impact of the war in Ukraine, and more,” he wrote.
The biggest concern now seems to be advertising—the first thing Snap, Facebook, Twitter, and others rely heavily on, and often undermined when budget managers start looking for spaces to shrink.
“Investors are poised for another twist on the roller coaster,” said Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown, as Monday’s earnings were largely wiped out by Snap’s bleak assessment.
It looks like Monday’s tech rally may be fleeting, unlike the images Snap created its name.