Vision 2: New Gemini
A bipolar world

While the world economy gradually recovers from the pandemic and geopolitical shocks from earlier in the decade, the landscape has changed dramatically. Bipolarity emerges as the United States and China undertake drastic steps to decouple their economies from one another. Supply chain and investment reconfigurations to adapt to emerging Chinese and US economic blocs prove challenging—though not insurmountable—for many countries. US–China economic decoupling occurs gradually while the two countries manage to recover and build upon the partial easing of geopolitical tensions begun in late 2022. As a result, relative predictability in US–China relations allows countries to better adjust to growing bipolarity, with some able to benefit from ties with both spheres.

The economic landscape, though volatile, eventually stabilizes as countries find their respective places in the US and Chinese spheres of influence, though growth is limited amid constrained trade and investment flows. Inflation falls significantly from the highs experienced in 2022, as central banks successfully carry out monetary policy tightening without stamping out growth, instilling more confidence and stability in the financial system Inflation nonetheless remains somewhat elevated as the rewiring of supply chains places upward pressure on prices.

In competition over critical and emerging technologies, the United States maintains a competitive advantage over China as the latter struggles with limited access to US technologies. At the same time, China remains a leader in the production and refining of rare earth elements and imposes some limitations—though does not stop— exports to rivals. Still, US efforts at domestic resiliency, particularly the boosting the production of semiconductors, are implemented effectively over the course of the forecast period, offsetting some of the losses from decoupling.

Key partners, such as Japan, South Korea, and Australia, boost ties with the United States to mitigate decoupling risks, bringing additional investment into the country. Lower-income economies, such as Vietnam, Indonesia, and India, also benefit from investment inflows as multinational companies diversify away from China. For China, key strategic partners include Russia, several Arab Gulf states, and many developing countries across the global South, including several in Latin America, Africa, and Southeast Asia. Some trade and investment ties with India are also expanded as India seeks to maintain geopolitical neutrality. These expanded partnerships primarily boost energy and resources trade and infrastructure investment in both US and Chinese-led spheres. China’s growing trade linkages also drive demand for the Renminbi as a reserve currency, though the US dollar remains robust throughout the forecast period. Still, pressures grow on many countries to side with either the United States or China, fueling uncertainty in the global economy.

Nevertheless, global energy markets see limited volatility as geopolitical tensions remain mostly tempered as countries adjust to the bipolar landscape. Additionally, the bifurcation of US and Chinese technology spheres complicates cross-border exchanges of data, digital services, key technological goods, and talent. Technology standards also diverge between these two spheres, complicating companies’ ability to serve competing markets across geographies. At the same time, companies eventually adapt to these reconfigurations, improving the landscape for technology innovation. Labor markets remain tight as both spheres compete to build the workforce of the future. Despite below-trend economic output, the world economy is starting to reach a new state of equilibrium by 2027.

Vision 3: Omnidirectional Navigation
Continued global political and economic fragmentation

Post-pandemic pressures shift the world gradually toward new centers of power and spheres of influence, though this unfolds more gradually than in the other competing futures. Geopolitical fragmentation is pronounced, with shifting blocs and trading partners throughout the forecast period, as powers fight for supremacy over innovation, technology, and standards. The United States, China, and to a certain extent the European Union remain centers of economic and political power. Yet amid a looser configuration in the global political and economic order, middle power players emerge in an increasingly multipolar landscape. India, Türkiye, several Arab Gulf states, and Singapore, for example, grow more influential in their respective regions and derive significant economic benefit from trade and investment ties with a diverse set of partners. While new trade hubs emerge, no one center exerts clear dominance, and geopolitical tensions remain tempered. Moreover, many countries engage economically between competing hubs, preventing the more damaging fragmentation experienced in the preceding visions.

Companies continue to reconfigure globally linked supply chains and investment, albeit at a slowed pace in light of gradual fragmentation. Over the long run, however, growing economic divisions forces a stronger push toward regionalization, reshoring, and greater agility. Cross-border technology flows remain strong, though hindrances grow as competition between major powers rises, particularly the United States and China. Nonetheless, opportunities for innovation emerge amid heightened competition between spheres, as the United States, China, and the European Union in particular fight for leadership on emerging technologies. Some gains in clean energy technologies also materialize, but global energy market linkages remain largely intact.

Outcomes for the global economy are mixed. Economic growth accelerates to 2.7 percent in 2024 following a slowdown in 2023. Annual growth rates from 2025 through 2027 remain between 3.6 and 3.7 percent. Inflationary pressures eventually ease as supply chains and investments are reconfigured, though this comes with inevitable inefficiencies and costs. Central banks’ policies are generally accommodating in this environment, able to adapt as needed in a new economic landscape. Financial markets generally function smoothly, and companies benefit from a predictable though relatively stringent lending environment. A rewired global economy emerges from the fragmented landscape, with supply chains and investment flows increasingly localized and regionalized in nature. Countries that can effectively balance economic ties with a range of partners across spheres of influence outperform economic expectations.

Vision 4: Full Steam Ahead
A refresh of global economic organization

The international system remains largely intact, despite intermittent geopolitical and economic flare-ups that generate disruptions in the global economy through 2027. Several leading countries, including the United States, European Union, and China, act to rebuild the global linkages damaged during the COVID-19 pandemic, though with an eye on resiliency for certain strategic sectors. These efforts temper, though do not eliminate, tensions over diverging trade and economic practices. While global trade and investment flows remain overall robust, some inefficiencies and rising costs emerge as governments focus on domestic support for critical minerals, energy, and technology. In response, efforts to modernize rules, norms, and institutions that govern the global economic order are prioritized.

Efforts to foster resiliency and build up domestic industry strengthen in many countries but stop short of damaging protectionism. After periods of bilateral negotiation, countries are generally able to reach consensus on appropriate subsidy levels for critical domestic industries. Notably, the United States and European Union come to a mutual understanding on climate and industrial policies and reduce escalations they experienced in 2022 and 2023. International institutions, in particular the World Trade Organization (WTO), receive revived and refreshed mandates to uphold and enforce the new economic order. For example, updates to the WTO’s 1994 General Agreement on Tariffs and Trade create new boundaries for exceptions for subsidy rules, allowing countries to support key domestic industries while reducing the threat of retaliation from trading partners.

Businesses benefit from a stronger degree of predictability in the global operating environment. Labor market imbalances in many countries also ease as demand smoothens, immigration remains open, and technology improvements boost automation. Further supporting this higher degree of predictability are central banks, which are largely able to stabilize their economies in 2023 and 2024 through tightened monetary policies while maintaining healthy levels of growth. Financial institutions respond favorably to these policies, tightening lending standards while keeping markets liquid and sound.

Despite lingering distrust, the United States and China restore the diplomatic momentum they established in late 2022 in select strategic areas, notably in clean energy technologies. Increased exchange of goods, services, and people in this area facilitates the deployment of solar, wind, electric vehicles, and other climate-friendly technologies. The potential for nuclear fusion as a viable power source also grows as the United States and China compete for global leadership while also benefiting from some expanded scientific and academic cooperation. This, coupled with more predictable supply chains and a calmer geopolitical environment, smoothens global energy market disruptions considerably. Technology innovations advance generally in this environment, though competition around advanced semiconductors, quantum computing, and other key areas remains intense.

Overall, the global economy is on relative steady ground by 2027, bolstered by a refreshed and revitalized system of rules-based order. With the likelihood of geopolitical tensions escalating greatly reduced, there is reason for optimism that growth and development can continue on this new foundation.

Conclusion and implications for business

The global economy appears to be navigating last year’s many headwinds better than expected. Despite recent turbulence owing to the failure of Silicon Valley Bank and downturn of Credit Suisse, as well as other signs of financial system uncertainty, recession fears and forecasts now broadly appear less acute. To be sure, aftershocks from the crises of 2020 and 2022 will linger. Persistent inflation remains a key challenge in the current economic landscape, and the wildcards of central bank policy, global financial conditions, and China’s reopening may threaten to keep prices more elevated than forecasted. Downside risks in other wildcards we have identified—financial system unpredictability, geopolitical volatility, labor market imbalances, and technology—also underscore the fragile economic picture ahead.

While a pathway to recovery is expected in 2024, especially in the second half of the year, our analysis also finds significant structural transformations in the global economic and geopolitical order in all four futures described above. The United States and China will continue to proceed with some degree of decoupling, supply chains will see profound reshoring efforts, and competition over key technologies and resources will intensify.

To help businesses best respond to these changes in the short and long term, we have identified four implications for business to address the shifts in the global operating environment:

Brace for fragmentation. Strategic companies will prepare for further changes in the global political and economic order that will reorient and regionalize supply chains, investment flows, and operations more broadly. This was acutely evident in Western companies’ hasty exit from Russia last year, with reported losses of more than $20 billion. Amid intensifying fragmentation, businesses must contend with greater difficulty in serving competing markets. For some companies, this could mean amplifying localization efforts, including the increasingly popular “in China, for China” strategy, in which businesses focus production in China for the Chinese market to shield from external risk. As governments strengthen self-sufficiency efforts, as seen in the US Inflation Reduction Act or the EU Net-Zero Industry Act, companies guided by strategic foresight will capitalize on new opportunities. In parallel, it will become more important for companies to communicate with governments on the costs and limits of economic fragmentation.

Expect tight labor markets in many countries to persist. While a 2023 slowdown in economic activity will cool labor markets, structural challenges accelerated by the pandemic will continue to strain the supply of labor, particularly in higher-income countries. In the United States, for example, the labor force participation rate has yet to return to pre- pandemic levels, and recent data suggests up to 2.5 million work-able people may be choosing to stay out of the labor market. Indeed, the pandemic may have created a longer-term aversion to work in low-pay sectors in OECD countries. And in the European Union, three in 10 manufacturing and service firms reported production restraints due to a lack of labor, even amid strong economic headwinds. Moreover, the trend of aging populations will accelerate in many countries, which the International Monetary Fund labels “the most formidable demographic challenge facing the world.” In addition, the risk of more restrictive immigration policies in a fragmented world would serve to tighten labor markets. To contend with these challenges, businesses must take a long-term view of their workforce needs, focusing on attracting and retaining top employees, securing foreign talent, and investing in technology and automation to mitigate labor shortages.

Prepare for reduced credit availability. As central banks move to raise interest rates and lenders become more cautious amid economic uncertainty, strategic businesses will develop plans for tighter financial conditions across sectors. Central banks are also embracing a new era of “Great Volatility,” suggesting an end to looser monetary policies of the past decade. Even prior to the recent banking sector troubles in the United States and Switzerland, major banks began tightening lending standards amid rising interest rates and deteriorating loan quality. Indeed, companies are likely to face significant debt burdens in coming years amid rising interest rates. Strategic businesses will assess how tighter lending markets could impact their operations as suppliers and customers may face greater difficulty in making payments.

Anticipate a rise in trade disputes and conflicts. As countries increase efforts at national self-sufficiency and fight for leadership on key technologies, expect disagreements and potential retaliation to arise in the global trading system. Already, friction between the United States and European Union over incentives offered to American industries in the Inflation Reduction Act is taking center stage in the transatlantic relationship. Countries may resort to retaliatory measures against policies of trading partners they deem unfair, erecting tariff and non- tariff barriers for foreign companies, goods, and services. As a result, companies with highly integrated global supply chains may face higher and unexpected costs. Strategic companies will remain aware of and adjust to the impacts of such actions on their supply chains and operations.

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