Forward Agenda – August 2018

This is the World Economic Forum’s monthly update – the Forward Agenda. Building on the success of the Agenda Weekly, each month we pull together the most relevant and insightful points on the global agenda.

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A perfect economic storm? Record levels of debt, rising inflation, a burgeoning trade war cramping incomes, fragile emerging markets defensively raising rates, a slowing Chinese economy burdened by massive debt and a lack of trusted economic leadership. While global growth is forecast at a healthy, if uneven, 3.9%, the IMF warns that the burgeoning trade war could slice 0.5% off global growth over the next 12 months. US bond markets are signalling a recession. On the upside, banks are better capitalised and stronger than they have been, animal spirits remain bullish, and employment is at this highest its been since the global financial crisis.

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The age of adaptation: Governments are being pressed to develop climate adaptation plans to prevent water and food shortages, heat-related deaths and damage to infrastructure. Record temperatures have been set across the globe this northern summer. A heatwave in Japan has been declared a natural disaster; and in Europe wildfires have spread from Greece to the Arctic circle, earlier in the year a dramatic surge in temperatures hit Hong Kong and India. Nine of the hottest years in history have occurred in the twenty-first century (and the 10th in 1998). Total economic losses from natural disasters and man-made events in 2017 were the highest they have ever been. Climate change has arrived.

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The fog of [trade] war: American manufacturers in diverse industries are being affected in unpredictable ways by the US administration’s programme of tariffs, trade barriers and domestic subsidies. Yet there are signs of hope for the global trading system, with Japan and the EU striking a bilateral trade deal, the EU, China and most recently the US teaming up to work on reforming the World Trade Organization, and a ceasefire between the US and Europe.

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The geotechnology race: As reported in Forward Agenda – July, analysts are looking at the strength and coherence of national artificial intelligence strategies as AI and other Fourth Industrial Revolution technologies are becoming critical national resources.

While the list of countries announcing dedicated AI strategies grows by the month, China picked up where the US left off. Critical commentators are enumerating the ways in which the US is ceding technology leadership; still others are calling for a “Sputnik” moment for the country to align national priorities.

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Retail revolution: Integrating online and offline shopping using AI, virtual reality and augmented reality is lending more muscle to the platform economy’s breakneck transformation of retail. Virtually trying things on, through social media or in-store, or adding data layers to aid product selection (think virtually painting your room, seeing how a piece of furniture looks in place before you buy it, or making accessory suggestions in a virtual mirror) are shaping the consumption landscape and accelerating the shift from bricks to clicks. More fuel powering the consolidation of the industry into a few big, global players.

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Tectonic shifts in the Great Game: As China asserts itself in its region and further afield, some have come to see the rapprochement between the US and Russia as a longer-game strategy. This confronts Europe with the need to navigate a path between a demanding US ally and an assertive China. European interests in maintaining the Iran deal would promote alignment with Russia and China, but judging from the outcome of EU Commissioner Junker’s trip to Washington, it would be premature to count the Western economic partnership out just yet.

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Techlash: Europe’s $5 billion fine of Google is part of an ongoing wrestle between national and supra-national governments and the global platforms. The regulatory toolbox that governments have at their disposal is out of date and too slow. The question of how to regulate tech is not going to be a simple one to solve, and many are arguing that only the companies themselves can do it. Meanwhile, the commercial battle between the American FAANGs [Facebook, Apple, Amazon, Netflix and Google] and China’s BATs [Baidu, Alibaba and Tencent] is raging over neutral, emerging market territory, and becoming a proxy for geopolitics. Third-party governments may be facing decisions about whether to become part of the US or the Chinese data bloc.

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Nuclear freeze: After the repatriation of the remains of 55 US soldiers at the end of July, on 15 August, North and South Korea will resume family reunions, following the April summit at which leaders of the two countries agreed to bring together families separated during the 1950-53 Korean War. This may serve as a focal point for diplomats to provide an update on the North’s denuclearization, and pinpoint the next milestone on the road to closer engagement.