Investment Institute

Will the pandemic spur deglobalisation?

In the second piece in our Great Shutdown series, Sahil Mahtani examines how the pandemic will impact global trade. A self-reinforcing deglobalisation that prompts an increased risk of higher inflation is possible, but more likely is an accelerated shift towards regionalisation – with profound implications for investors.

May 7, 2020

19 minutes

In the second piece in our Great Shutdown series, Sahil Mahtani examines how the pandemic will impact global trade. A self-reinforcing deglobalisation that prompts an increased risk of higher inflation is possible, but more likely is an accelerated shift towards regionalisation – with profound implications for investors.

The second part of a new series by the Ninety One Investment Institute

Self-filmed at home by our authors, during the Great Shutdown.

The fast view:

  • The longer the pandemic and the economic crisis it has spurned lasts, the greater the chance it sends the globalisation that began after the Second World War into reverse.
  • Yet the type globalisation that characterised the 1990s and 2000s was already receding before this crisis. In its place regionalisation was leading—a variant of globalisation but not in and of itself deglobalisation.
  • Our base case is a continuation of that regionalisation trend. A self-reinforcing process of deglobalisation is still possible, but we consider this a risk case. Meanwhile, COVID-19 also poses an upside risk to globalisation given the extraordinary positive impulse to digital services trade.
  • There is a temptation to draw simple conclusions from COVID-19. For instance, a self-reinforcing deglobalisation that prompts an increased risk of higher inflation. Assessing the ways in which globalisation affects inflation, we think there may be an upward bias to inflation in longer-term timeframes, but in the context of a disinflationary impulse in the short to medium-term, and our base case of continuing regionalisation, COVID-19 is unlikely to lead to precipitously higher inflation.

 

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Authored by

Sahil Mahtani

Strategist

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All rights reserved. Issued by Ninety One, issued May 2020.