The global economy is facing weaker growth and increasing fragmentation, as a result of rising geopolitical tensions, especially due to the war in Ukraine and the US-China strategic rivalry. Protectionism, industrial policy and a focus on resilience are altering the global trade and foreign direct investment landscapes, creating considerable risks. Yet, the changing global operating environment also comes with new growth opportunities in the years ahead, especially in the Asia Pacific region.
This report comes in PPT.
Geopolitical risks, emanating primarily from the war in Ukraine and worsening US-China tensions, are the primary drivers of the globalisation reset. This will be a drag on global growth and will transform the global operating environment for businesses. In addition to heightened volatility and uncertainty, recurring economic disruption will become more likely.
The reset of globalisation will be fuelled by the rise of protectionist industrial policies, leading to significant shifts in global trade, investment and technology. Increasing fragmentation in the global economy among geopolitically aligned countries will alter the global trade and foreign direct investment landscapes, creating growth impulses, especially in Asia Pacific.
Due to high geographic concentration of industries supplying critical goods, government and companies have been reassessing their trade relationships and interdependencies amid rising geopolitical volatility. Hi-tech goods, machinery and textiles are some of the most heavily concentrated industries and are therefore most likely to drive production diversification efforts.
Strategic decisions to diversify or relocate manufacturing sites will be driven by the competitive advantages of economies, including a broad labour pool, attractive operating costs, favourable trade policies and productivity growth. The reset of globalisation will facilitate the emergence of new manufacturing hubs in these economies over the next decade.
The Future Manufacturing Hubs Index highlights that economies in Asia Pacific are best positioned to benefit from the reset of globalisation. Numerous other developing economies have opportunities to attract light manufacturing sectors. Developed economies can successfully attract investment from sectors that are less sensitive to higher operating costs.
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