A call for visionary political leadership at the national level and increased global awareness of our shared challenges
Businesses, governments and investors were already navigating a foggy global landscape before the tragic events unfolding in the Middle East. But the horrible conflict between Hamas and Israel, which has already led to enormous suffering and claimed the lives of thousands of civilians, including so many children, has introduced a new layer of uncertainty for the global economy.
When the growth narrative of the world’s largest economy, with its mature institutions and diversified productive base, can change so easily, it is no wonder that uncertainty in the rest of the world is even more pronounced. Instead of resembling a normal bell-shaped distribution of potential outcomes with a single peak and slender tails, the global outlook looks like a multimodal distribution, with fat tails on either end — suggesting a higher likelihood of extreme events.
Third, the persistence of this interest-rate outlook increases the risk of recessions and financial-market turbulence. We saw early signs of this in March when balance-sheet mismanagement and slippages in bank supervision led to the failure of some regional U.S. banks. Moreover, shrinking central-bank balance sheets and the absence of an effective policy framework compound the challenge of determining the right inflation targets in a world economy characterized by an insufficiently flexible supply side.
Without these economic, policy and technical anchors, the global economy and capital markets resemble boats in a rough and unpredictable sea. That brings us to the fifth driver of global uncertainty: the inadequate response to long-term crises like climate change and widening economic inequality. The longer we wait to tackle these problems, the greater the eventual costs will be. Our insufficient actions today ensure that we will face more complicated economic and political obstacles.
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