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“COVID-19 has forced firms to re-evaluate and transform their logistical networks, as the hidden costs of single-source dependencies and inflexibility in adapting to real-time shocks have been laid bare,” the report says.
The pension giant is closely scrutinizing whether this development “increases firms’ emphasis on resilience and diversification of suppliers, as compared to efficiency in production.”
The report notes that integration has nevertheless increased in some corners of the global economy during the pandemic.
“Despite the setback in trade globalization, the pace of trade and value-chain integration has accelerated at a regional level, particularly in Asia,” the report notes. “This trend of regional integration could further accelerate, with additional regional trade agreements being finalized.”
On the subject of fiscal policy and debt sustainability, the report notes that new government fiscal measures taken in 2020 amount to over US$5 trillion, or six per cent of global GDP, with the crisis expected to push the global public debt-to-GDP ratio above 100 per cent.
“Modifications to monetary policy frameworks, combined with accommodative fiscal policy, could lead to modest but temporary increases in rates of inflation in the near-to-medium term and spur a rebound in employment rates and business investment,” the white paper concludes. “On the other hand, a failure of policy to evolve, along with unexpected weakness in global growth, could lead to continued below-target inflation.”
The latter scenario would raise the risk that interest rates will remain near zero and that business investment will remain weak, the report says.
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