In response to COVID-19, Russia’s war with Ukraine and climate change, governments and global companies are seeking security and resilience over the benefits of global value chains (GVCs). There are strong signals that the era of globalisation is coming to an end.
Contributors: Christian Keller & Renate Marold
28 Sep 2022
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1. Sentiment is turning towards deglobalisation
The rise of globalisation has never been entirely smooth or assured. The reduction of global trade that was bookended by the two world wars, was followed by 60 years of increased globalisation. This included the hyper-globalisation period from 1990 to 2008.
However, the global financial crisis, trade wars between the US and China, disenfranchised middle classes of developed economies, and rising concerns about over-reliance on trade with China, led to a period of relatively stagnant ‘slowbalisation’.
Today, ‘slowbalisation’ appears to be moving closer and closer towards deglobalisation. Recent disruptions to global value chains such as the COVID-19 pandemic, the war in Ukraine, increasingly pronounced ideological differences and the green transition, have prompted governments and corporations to reconsider external dependencies, and to look closer to home and to trusted partners for more resilient growth models.
This sentiment is transcending media headlines and political posturing, and is becoming part of general corporate rhetoric. Our Investment Sciences team have been studying corporate transcripts for mentions of ‘onshoring’, including sentiment. A small but notable fraction (4%) have mentioned onshoring in 2022. Striking, when this has been under 1% prior to the pandemic.
2. Deglobalisation isn't completely global
While M&A and jobs data suggests that deglobalisation is occurring, it is not happening uniformly across the planet. Increased onshoring of jobs is taking place primarily in Asia. Domestic employment is also increasing in the US and Europe, but this appears to balance local resignations, and the net trend in both regions is still towards globalisation, albeit among more junior roles.1
We also found evidence that fewer announced M&A deals have been completed recently than historical patterns would suggest. Moreover, deals between target firms in Europe and North America are less likely to succeed when the acquirer is outside these regions, especially for target firms in industries such as high tech, finance and retail. On the other hand, deals targeting firms in, for example, consumer staples, are more likely to succeed.
Similarly, the slowdown of M&A activity may not be caused solely by macroeconomic trends, but also by regulatory concerns, as the European Commission and the UK antitrust authority increase scrutiny on deals.
3. The green transition will create new winners and losers
Energy is a key sector to watch in terms of both globalisation and deglobalisation. The common incentive for nations to address climate change has been a major source of globalised co-operation in recent years. Yet the mechanics of the green transition itself also necessitate a more local focus.
The push towards a long-term increase in the share of energy coming from renewables, is being driven by the reduction of carbon-intensive transportation infrastructure and carbon pricing mechanisms acting as de facto tariffs. Rising concerns about energy security and fossil fuel pricing volatility have also heightened interest in domestic renewables.
However, as the green transition is a worldwide challenge, our analysts suggest it still needs a globalised approach complementing local and regional solutions. Although the rise of renewables will fundamentally reshape fossil fuel trade flows, the green transition will have to be supported by the minerals industry that will be used to build its infrastructure. This will result in the increased trade integration of mineral-endowed countries.
1. Revelio, Barclays Research
The 67th edition of the Equity Gilt Study examines deglobalisation in more depth, and explores how the global macro landscape has structurally changed after the onset of the Russia-Ukraine war. Clients can access the full report here
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About the experts
Managing Director, Head of Economics Research
Christian Keller is a Managing Director and Head of Economics Research at Barclays, leading a global team covering both Developed and Emerging Markets. Mr. Keller is based in London and joined Barclays in 2007 from the International Monetary Fund (IMF) where he had worked since 1999. Based at the IMF headquarters in Washington D.C., Mr. Keller worked on IMF programs with Emerging Market economies in Europe, Latin America and Asia, and served as the IMF’s Resident Representative in Turkey from 2005-7. Mr. Keller
graduated with a PhD in Economics from University of Köln, Germany, and holds a joined-MA in Economics and Finance from University of Köln and HEC, Paris.
Director, Investment Sciences
Renate Marold is a Director in the Investment Sciences team based in New York. Her focus is
on employing alternative data and data science methods to explain macroeconomic and
financial trends. Prior to joining the Investment Sciences team, she was responsible for
covering US swap spreads, as well as conducting fundamental research with a macro focus, in
the US Rates Strategy team at Barclays. Prior to joining Barclays in 2017, Renate was a
monetary policy advisor at the Dutch Central Bank and the Federal Reserve Bank of New
York, where she focused on the operational framework of monetary policy. She graduated
from Tilburg University in the Netherlands with a MSc in Economics (Cum laude).