Global leaders gathered in Davos from the 16^th to 20^th of January 2023 for the World Economic Forum’s 53^rd Annual Meeting centred on “Cooperation in a Fragmented World”. The COVID-19 pandemic, Russia’s invasion of Ukraine, disruptions along key supply chains, and rising food and energy prices all cast a sombre shadow on the prospects of economic recovery and economic growth for 2023. The World Economic Forum expects that geopolitical faultlines will continue to impact global economic activity in 2023 and that there is a strong likelihood that the world will experience a global recession. Our CEO insights  “Looking Ahead to 2023” summarises the global economic outlook in 2023 (IEC, 2023). Against the backdrop of the current poly-crises, the agenda for this Annual Meeting was to “reaffirm the value and imperative of dialogue and public-private cooperation” to navigate the recent storm and advance long-term solutions (WEF, 2023).

Figure 1: Navigating a new landscape

Source: WEF (2023)

With global trade flows reaching USD 32 trillion in 2022, trade was an overarching theme at Davos and is seen as a crucial solution for economic recovery. In the face of rising concern over the decoupling of global markets, especially following tensions between China, the European Union and the United States, Ngozi Okonjo-Iweala, the Director General of the World Trade Organisation (WTO), emphasised the importance for countries to cooperate now more than ever. In recent years, the IMF has recorded an upward trend in  global restrictions on goods, services, and investments (See Figure 2). Following the outbreak of the COVID-19 pandemic, the mention of ‘reshoring’, ‘onshoring’ and ‘near-shoring’ increased by nearly ten times (IMF, 2023). The IMF notes that public support for free trade has witnessed a sharp decline in many countries, thus raising concern over the future of free trade.

Figure 2: Rising restrictions in international trade and investment

Source: IMF (2023)

Geoeconomic fragmentation will have severe consequences for the global economy. If the world were to fragment, simulations run by the WTO suggest that 5% would be wiped off from global GDP, equivalent to Japan’s entire economy (CGTN, 2023). Given the strong likelihood of a global recession in 2023 and economic slowdowns, multilateralism, cooperation, and trade can boost economic recovery, spur development, and find solutions to problems of the global commons. Some of the key solutions proposed by the IMF for addressing fragmentation globally include strengthening the international system, addressing debt distress among poor and vulnerable economies, and improving climate action (IMF, 2023).

Positioning trade as a global public good, Yoon Suk-yeol, the President of the Republic of Korea, equally emphasised the significance of improving supply chain resilience, especially since it will be vital in ensuring a low-carbon transition, effectively addressing the climate problem, energy security issues, and promoting digitalisation. The President also highlighted the Agreement on Investment Facilitation for Development currently being negotiated at the WTO. Co-sponsored by 112 WTO Members in 2021, the aim of the Agreement aims to assist countries to improve the business and investment environment of developing and least-developed countries (WTO, n.d.). During the Annual Meeting, it was highlighted that negotiations have reached their final stage and that the Agreement should be completed during 2023.

Another critical topic that gained centre stage at Davos 2023 is the need to place climate action at the heart of trade and trade policies. Davos 2023 witnessed the launch of the Coalition of Trade Ministers on Climate. Spearheaded by the trade minister of Ecuador, the European Union, Kenya and New Zealand, the coalition comprises more than 50 ministers of trade. The purpose of the coalition is to offer high-level political direction and improve national and international cooperation among ministers working on climate, development, the environment, and finance (WEF, 2023). There is increasing acknowledgement that it is important to align trade and environmental policy objectives in order to attain sustainable growth and development. In this respect, the coalition will equally identify trade-related strategies to promote trade and investment that encourage developing and adopting climate-friendly goods, services, and technologies.

On the same agenda, the decarbonisation of supply chains to ensure the sustainable movement of goods was also discussed. In a recent interview, the Swedish electric services company Vattenfall, one of the founding members of the First Movers Coalition at the WEF, stated that transformative technologies are required to reduce emissions and allow decarbonisation on a much larger scale (WEF, 2023). Recycling and reusing of materials such as steel and concrete are also expected to go a long way in reducing carbon footprint across supply chains. However, emerging economies are at risk of being left behind in deploying advanced technologies due to a lack of green infrastructure. There is a sharp distinction between the renewable energy capacity growth of emerging economies in the Middle East and North Africa (MENA), in Sub-Saharan Africa and the Association of Southeast Asian Nations (ASEAN) compared to more advanced regions such as the European Union and the United States (IEA, 2023). Along with the use of cutting-edge technologies, global cooperation is also considered key for the greening of supply chains.

Figure 3: Renewable energy capacity growth, main and accelerated cases, 2010-2027

Source: IEA (2023)

Advances in technology have also been discussed in relation to trade. Artificial Intelligence (AI), for instance, holds numerous opportunities for international trade such as the development of smart solutions, the optimisation and automation of existing supply chain operating models, and the reduction of costs and waste in global value chains, as we explored in this article on “Big Data in International Trade: What is working and what have we learnt so far?” (IEC, 2022). At the WEF Annual Meeting, the UAE made an announcement of a new partnership with the WEF with regard to the application of Industry 4.0 technologies in trade to promote the digitisation of supply chains, improve customs procedures, and develop emerging countries’ participation in global trade. Four main components will be included under the programme, namely:

1. The establishment of a global platform for exchanging best practices;
2. An annual study of the trade-technology landscape;
3. Real-life applications of technology and emerging trends; and
4. A regulatory sandbox that promotes innovations and an incubator for promising start-ups.

However, as much as technology can make trade more inclusive, sustainable, and resilient, there are also certain potential challenges that could emerge in 2023. The adoption of new technologies, including the application of AI represents a threat to many occupations and livelihoods. According to Stanford University professor Erik Brynjolfsson, machines did not entirely replace workers in the past (The Guardian, 2023). Instead, machines complemented human labour, allowing them to perform tasks more effectively and efficiently. With the rapid advancement in AI, that massive efficiency may lead to massive layoffs in the years to come. As such, one of the key priorities for policymakers globally is to give due consideration to the future of work and adopt the necessary legislation and regulations that will ease and mitigate the impacts that technology will have on livelihoods.

As forecasts for 2023 appear bleak on several counts, trade policies globally must be aligned to support economic recovery as well as broader environmental objectives at the international and national levels. Technology will act as an impetus for further efficiency and gains in trade and sustainability. However, it is essential to ensure that advances in technology do not widen the digital divide and threaten the livelihoods of already vulnerable segments of the global workforce.

CEO Insights is a monthly publication of International Economics Consulting Group (IEC). IEC is an independent consultancy group working with governments, international development partners, and the private sector to navigate trade opportunities and promote sustainable growth and development. IEC provides strategic advisory services underpinned by research and quantitative analysis to assist organisations, governments, and businesses in anticipating risks, building resilience, mitigating impacts, and supporting clients in recovery against economic shocks. Learn more about the services that IEC provides here.

Paul Baker is the founder and chairman of International Economics Consulting Group (IEC), a globally recognised consulting firm. Nominated for seven consecutive years in Who’s Who Leading Trade Economists, he has advised several G7, G20 and G90 governments in developed and developing countries, an adviser on global corporate strategies to multinationals, and a Visiting Professor at the College of Europe. Paul is an expert in the Working Group of the World Economic Forum’s (WEF) Digital Flows Initiatives, an Expert in the WEF/WTO’s Trade Tech Working Group and is on the Board of the United Nations Economic and Social Commission for Asia Pacific’s Trade Intelligence tools. He is also a member of the UK’s All Party Parliamentary Group on Trade and Investment, and a regular contributor to the UK Parliament’s Trade Select Committee, and UN panels on trade impact analysis. 

 

References: 

CGTN. (2023, January 21). WTO chief warns ‘decoupling’ of global market will lead to huge economic losses. CGTN.

IEA. (2023). Renewables 2022: Analysis and Forecast to 2027. International Energy Agency.

IEC. (2022, September 26). Big Data in International Trade: What is working & what have we learnt so far?: CEO Insights. From International Economics Consulting: https://tradeeconomics.com/big-data-in-international-trade-what-is-working-what-have-we-learnt-so-far/

IEC. (2023, January 16). Looking Ahead to 2023: CEO Insights. From International Economics Consulting: https://tradeeconomics.com/looking-ahead-to-2023/

IMF. (2023, January 16). Confronting Fragmentation Where It Matters Most: Trade, Debt, and Climate Action. From IMF: https://www.imf.org/en/Blogs/Articles/2023/01/16/Confronting-fragmentation-where-it-matters-most-trade-debt-and-climate-action

The Guardian. (2023, January 20). China’s future to AI and jobs: five big questions from Davos.

WEF. (2023, January 31). Davos 2023: The state of global trade and investment. From World Economic Forum: https://www.weforum.org/agenda/2023/01/davos-23-the-state-of-trade/

WEF. (2023, January 16). Davos 2023: What you need to know about jobs and skills. World Economic Forum.

WEF. (2023, January 25). Why cooperation is key to sdecarbonising value chains, according to a clean energy expert. From World Economic Forum: https://www.weforum.org/agenda/2023/01/decarbonizing-value-chains-vattenfall/

WTO. (n.d.). Investment facilitation for development. From World Trade Organisation: https://www.wto.org/english/tratop_e/invfac_public_e/invfac_e.htm