Stronger protectionism and growing optimism

If protectionists win over globalists, the world’s GDP will be 44 trillion dollars less than if globalists won. This is one of the results of a joint study conducted by Zurich Insurance Group and the American Atlantic Council.
In the interview Nuria Gorog, Senior Vice President and Regional Manager for Continental Europe at Zurich Insurance Group also talks about a rather unprecedented contradiction. Nowadays, the people of the developed world are both optimistic and pessimistic at the same time: they are worried about migration, terrorism, they do not trust politicians, and believe that the western democracy is failing; however, they also believe that their chance for personal economic success is getting better.

Péter Zentai: Do we have to worry about the ever-growing political, technological, social, and economic risks?
Nuria Gorog:
Clearly, global risks are increasing at an exceptional rate. Our studies have proved that geopolitical tensions, even if far away from each other, along with internal social, business, economic, and political risks mutually amplify each other with unprecedented dynamics. Most of these risk factors affect the relationship between countries, and companies, while they also influence commodity- and share markets. They generate international and global tensions too. For instance, the recent Ukrainian or Libyan internal conflicts have contributed to the current insecurities in the global political, economic, and financial arena. The only thing that investors could do is learn about the connections between possible threats, about risks that could influence potential financial and stock markets and international geopolitics. In our project, Zurich Risk Room, we thoroughly follow more than a hundred countries, and model the possible regional or global risks they could generate, together with their expected effects on the other 172 countries.

Both company managers and consumers are becoming more optimistic about their prospects. However, at the same time, they are also very pessimistic as for world politics. One would suppose that this negativity would ‘crush’ their optimism, but it just does not happen.
It is known that – especially in the United States and Europe – economic players and the people are thinking more and more contradictory. But the development of world economy and world politics is also with plenty of contradictions. Everyone takes advantage of interest rates ‘frozen’ at a historical low point and its results, the expanding consumption, full employment, and the accelerating economic growth. However, it is becoming clearer that the internal political conflicts of the Near and Middle Eastern, and African countries, along with climate change force millions of people to migrate – to Europe. This pressure scares Europeans, who then use their democratic rights to support politicians and parties that advocate protectionism, inward looking policies and economy – those who actually try to end democracy. The growing influence of protectionism and the weakening of democracy actually slow down the economic growth, which is the very foundation of this optimism. Free trade gets crippled, international business activities could be weakened, which leads to standard of living to drop, internal social tensions to rise, furthermore, it also increases the threat of international conflicts.

One of the greatest questions of our time is whether the advocates or critics of globalization will win. The fear from migration and terrorism, the broadening of social inequalities improve the chances of protectionists. What could be the consequence of their victory?
The study we conducted together with Atlantic Council (World Transformed: Geopolitical Shocks and Risks) modelled the possible scenarios of world economic development for the next twenty years. If protectionism gains ground, then by 2035, global GDP will be 44 trillion dollars less than if supporters of globalization won.  After a protectionist victory – according to our calculations – one of the main purposes of UN to conquer hunger by 2030 would be impossible. Moreover, in this case, even 33 million more people would enter extreme poverty in the next two decades.

Original date of Hungarian publication: June 28, 2017