Deutsche Bank names 8 top themes for the upcoming global era of disorder

In 2020, perhaps a new era in the history of mankind, which will define the concept of “disorder”, writes Deutsche Bank in a new study. One of her main motives will be the Cold War between the United States and China.

The era of globalization, which has lasted since 1980, is coming to an end – it is being replaced by a “century of disorder,” according to Deutsche Bank in a study dated September 8 (available on RBC). The report, prepared by the bank’s strategist Jim Reid and his colleagues, says the new era will be characterized by the rise of the Chinese economy over the United States and the accompanying tensions between them, continued growth in global debt, the policy of “helicopter money” from central banks and the rise of millennials (who have entered adult life in the 21st century) and younger generations, including in terms of their electoral weight.

Disorder will define a new era, at least initially, for a decade or more. “Not every mess is bad,” notes Deutsche Bank. “We must emphasize that the new era should not be taken as a reason to abandon the purchase of financial assets, as the new era will bring massive [monetary] intervention and liquidity,” the authors continue. But if the previous era of globalization was associated with a record cumulative rise in asset prices, then the “age of disorder” threatens current global estimates, especially in real terms, the bank warns.

Eight key themes

The Age of Disorder will be characterized by at least eight themes:

1. deterioration of relations between the United States and China as Beijing’s economic weight increases;
2. moment of truth for Europe: the COVID-19 pandemic has given a new impetus to integration processes, but it is likely that Europe will remain in a state of economic stagnation with the prospect of political fragmentation;
3. further increase in debt and the spread of the policy of “helicopter money” as the monetary mainstream;
4. likely inflation growth due to fiscal and monetary expansion;
5. an increase in economic inequality at the beginning of the post-spear era, but in the future – a reversal of this trend: states will begin to levy more taxes from the rich;
6. increased competition between generations: millennials and younger people will catch up with older generations in numbers by 2030, which will allow them to determine the results of democratic elections;
7. growing global concern about climate issues;
8. new technological revolution.

Another cold war

China could overtake the US in nominal GDP by the end of this decade. As the gap between economies narrows, fears about the so-called Thucydides trap (a term meaning the risk of military conflict between two rival powers when one catches up with the other in economic power) will increase. Deutsche Bank notes that over the past 500 years, there have been 16 such situations and in 12 cases this led to war. “Military conflict is highly unlikely these days, but economic war is more likely instead,” analysts write.

The confrontation between the United States and China, which will gain momentum regardless of the outcome of the upcoming presidential elections in America, will resemble the Cold War between the USSR and the United States. The manifestations of the economic conflict will be additional tariffs, sanctions, blocking of assets, bans on technology transfer. This will certainly lead to the formation of country blocs – one led by China, the other led by the United States. The countries of Southeast Asia will enter China’s orbit, but Japan, South Korea and Australia are likely to end up in the American camp. China, Russia, the European Union and Turkey will vie for influence in the Middle East and Africa.

Generational confrontation

The problem of large debts is growing in Europe. Amid growing debt, global borrowing rates are at an acceptable level only thanks to interventions by central banks that distort the free market. “In the future, we will see more crises, more chaos and more money printing by central banks,” writes Deutsche Bank. The transition to the policy of “helicopter money”, which implies injecting liquidity not into the financial sector, but into the wider economy (for example, households or the real sector) is likely to lead to an acceleration in inflation.

In a post-like world, economic inequality between people will initially increase, but then governments are likely to start raising taxes on wealthy citizens and corporations. The topic of competition among age generations is also closely related to inequality. After 2030, Deutsche Bank estimates that the number of voters belonging to millennials and younger generations in the G7 will exceed the number of voters from generations born before 1980. The new alignment “will begin to change the results of political elections and, accordingly, politics.” For example, younger voters mostly voted against Donald Trump and Brexit in 2016, but their weight was not enough to change the vote, Deutsche Bank notes.

Younger generations are more concerned about climate change. The authors of the report believe that a carbon tax is likely to be introduced in the world as early as the current decade. Now the European Commission is discussing it: it is assumed that European importers of steel, aluminum and other products with a high carbon footprint will be forced to buy carbon units – in fact, the equivalent of import duties.

Finally, today’s sky-high valuation estimates for tech companies will either prove to be valid, leading to technological breakthroughs, or a repeat of the 2000 dot-com bubble. But in any case, the technological race of the leading powers seems inevitable. While the United States remains the global technology leader, China comes close in R&D spending at purchasing power parity. The US and China are likely to continue to implement competing technology standards, Deutsche Bank said.