Globalization is stagnating.
Keller and Marold 23---Christian Keller is a Managing Director and Head of Economics Research at Barclays, leading a global team covering both Developed and Emerging Markets. 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. (“Deglobalisation: what you need to know”, World Economic Forum, 1-17-2023, https://www.weforum.org/agenda/2023/01/deglobalisation-what-you-need-to-know-wef23/)//AN
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.
There are strong signals that the era of globalisation is coming to an end, analysis by research analysts at Barclays Corporate and Investment Bank suggests.
Sentiment is turning towards deglobalisation
The rise of globalisation was never 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 2008 financial crisis, trade wars, disenfranchised middle classes in developed economies and rising concerns about over-reliance on trade with single partners led to a period of relatively stagnant "slowbalisation".
Today, "slowbalisation" appears to be moving towards deglobalisation. Recent disruptions to global value chains such as the COVID-19 pandemic, the war in Ukraine, growing ideological differences and the green transition have prompted governments and corporations to reconsider external dependencies. They are looking 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. According to Barclays’ Investment Sciences team, a small but notable fraction — 4% — of corporate transcripts mentioned onshoring in 2022. Striking, when this has been under 1% prior to the pandemic.
Deglobalisation isn't completely global
While M&A (Mergers & Acquisitions) and jobs data suggest 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.
Barclays 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 advanced technology, 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.