Ray Dalio: Here are 5 trends shaping the global economy

As the founder of one of the world's largest investment management firms, Ray Dalio has a keenly observed perspective on the forces that shape the global economy.

At the age of 12, Dalio began trading stocks and shares after being introduced to Wall Street professionals while working as a golf caddy. In 1975, he founded Bridgewater Associates from his bedroom, two years after leaving Harvard with an MBA. Over the next 47 years, he led the business to the pinnacle of the industry.

Dalio has shared his principles on various subjects in a series of books, including on navigating debt crises and dealing with the changing world order.

In a recent interview with the World Economic Forum, Dalio shared his insights on five key trends that have consistently shaped the global economy throughout his working life.

Levels of national debt fluctuate over time but the pandemic pushed global borrowing to record highs.

“There’s a debt cycle, a debt money cycle”, says Dalio. “You accumulate a lot of debt then how do you deal with it? Do you print money or do you default? That carries through to economics and the markets, and of course, that has a big effect on the world economy.”

The biggest impact of rising global debt is perhaps being felt by developing nations, which face higher borrowing costs than developed countries, according to research by the United Nations’ trade and development body.

Populist politics and a growing divide between rich and poor are driving division in many countries, Dalio believes. “Internal conflict, internal order and disorder, are quite often related to greater wealth differences and values differences that create populism on both sides. This can lead to an internal conflict and that internal conflict almost creates disorder, because compromise is considered a sign of weakness.”

The rise of new global powers is destabilizing the Western-led world order that emerged from the ashes of World War Two, says Dalio. He describes this as another cyclical process that will continue to influence the global economy.

“A new power comes in, it becomes a dominant power, and then there's a cycle. So now we have a great world conflict over the world order, as you see the rise of China, the United States. The world order has changed.”

“Droughts, floods and pandemics have killed more people than wars and have been more responsible for changes in orders”, says Dalio. He’s put a price on the cost of tackling climate change – and the even bigger cost of failing to do so.

“Economically, it's estimated that one way or another it's going to cost about $1 trillion a year.” At the current rate of global gross domestic product that’s one percent of all growth consumed by climate change, but only if we deliver on commitments quickly and effectively – something that Dalio does not believe is currently happening.

“It could be catastrophically expensive if you deal with it the way we are right now,” he warns. “Money has to go into it to be able to make progress in mitigating and sticking to the one and a half degrees.”

A public-private approach is the most effective, Dalio says, but adds that institutional private investors require incentives to sink their funds into climate mitigation programmes.

“The biggest pot of money is institutional investor money,” says Dalio. I know that there would be the motivation to invest in this area … if there's a return, they just can't give money away.”

Dalio argues strongly that climate finance requires innovative products, and he’s clear on where the opportunity for such innovation lies. “It takes place in venture capital or capital in various ways. And so the idea of being able to take advantage and support that kind of innovation, to be able to make more profit, is underutilized. There's not much going on in that area yet and there should be.”

The founder and mentor is co-chair of the World Economic Forum's Giving to Amplify Earth Action Initiative, which aims to unlock funding for climate and nature solutions, and accelerate the shift towards sustainable business practices.

He also stresses the importance of new technologies in fostering growth and is even creating an artificial intelligence (AI) bot version of himself, enriched with insights from his 50 years of economic experience.

“Because of the development of generative AI and because I wrote down and discussed thousands of principles, I am creating a digital version of myself that can deal with everyone directly. I want to be able to have high-quality conversations with people who want to have high-quality conversations with me through it,” he said.

In a time when AI is revolutionizing nearly every sector, technology's influence is more significant than ever. Dalio observes that technology has consistently driven economic transformation, with each innovation building on the last, leading to further breakthroughs and the potential to redefine the status quo.