IMD World Competitiveness Booklet 2023

Navigating a fragmented globalization landscape

Dr. Christos Cabolis Chief Economist IMD World Competitiveness Center

Over the last few years, the global economy has encountered a series of disruptive events, each leaving a lasting impact on subsequent years and therefore highly relevant to the 2023 macroeconomic landscape. While policies implemented to address the global consequences of the pandemic have effectively mitigated certain risks, they have also inadvertently given rise to new challenges – the looming threat of inflation prominent among them. By exploring these complex patterns, we can better understand the priorities of both the public and private sectors. Inflation: How did we get here?

In 2022, the world’s focus gradually shifted from the protracted pandemic to growing concerns about inflation and geopo litical risks. Despite the emergence of the Omicron variant of COVID-19 early last year, the global narrative increas ingly shifted towards the issues of rising prices and geopolitical uncertainties. This change in focus calls for a deeper exam ination of how the inflationary landscape has evolved and of its implications for various stakeholders. The tumultuous events of 2020 triggered a severe global economic downturn, as nations were compelled to enforce stringent lockdowns and restrictions to mitigate the spread of the COVID-19 virus. This led to significant disrup tions across industries such as travel, hospitality, and retail, among others.

Moreover, the disruption of global supply chains profoundly impacted economies, resulting in shortages of critical goods like personal protective equipment and price hikes due to the subsequent imbalances between supply and demand. Govern ments responded with fiscal measures, monetary interventions, and ambitious vaccine distribution programs to try and revive economies. However, these well-in tentioned efforts inadvertently paved the way for a new challenge: inflation. General price levels for goods and services experienced a steady ascent, warranting attention and concern. Figure 1 depicts the turbulent journey of the consumer price index (CPI) over the past five years, based on data from the IMD World Competitiveness Center. Before 2020, the CPI exhibited a moderate

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