Words of caution from Summer Davos

Business Recorder

28-06-2025

EDITORIAL: It's not every day that the president of the World Economic Forum warns of a 'decade of lower growth.' But that's precisely the message Børge Brende delivered at Summer Davos in Tianjin — a sobering forecast that goes beyond the usual Davos-speak of digital revolutions and climate partnerships. The world, he said, is entering its most geopolitically complex period in decades, and the headwinds facing global growth are intensifying, not fading.
Markets have grown used to brushing off geopolitical shocks. The pandemic was followed by a rapid recovery. Russia's invasion of Ukraine triggered initial panic, but portfolio flows resumed quickly. Even the Israel–Iran war, despite its high stakes, has not yet translated into a prolonged financial crisis. But the accumulation of risks — trade fragmentation, armed conflict, political instability — is beginning to show up in macro projections. Both the World Bank and IMF have now revised global growth forecasts for 2025 downward, from 2.7pc to around 2.3pc.
That may not sound catastrophic, but in a world fuelled by debt and liquidity, even a half-point drag on global GDP has wide-ranging implications. It affects not just trade flows and commodity demand, but sovereign debt sustainability, social stability, and the room central banks have to ease. Brende's warning is timely, not just because of the numbers, but because of the structural shifts underway. The world isn't simply in a slowdown — it's in the early stages of a strategic reordering.
The US-China trade war, once dismissed as a Trump-era anomaly, is now institutionalised policy. China, which still accounts for about 30 percent of global growth, is shifting inward — away from export dependency and toward domestic consumption and digital services. That transition is necessary, but it's not without turbulence. Beijing's real estate market remains fragile, consumer confidence is uneven, and supply chain recalibrations are far from complete. If the Chinese engine sputters, the rest of the world will feel it.
In parallel, the multilateral trade order that underpinned decades of growth is losing traction. New regional blocs, tariff walls, and subsidy races have become the norm. The return of industrial policy may excite national planners, but it fragments global efficiency. When war in one region sends insurance premiums, energy costs, and shipping rates soaring, it becomes harder to pretend these shocks are local. They're systemic—and cumulative.
What's particularly worrying is that none of this exists in isolation. As Brende pointed out, the traditional lines between economic and security policy are now blurred. Conflict doesn't just disrupt supply chains; it drives trade strategy. Currency wars give way to chip bans. Defence deals morph into energy alliances. And through it all, global governance institutions struggle to keep pace.
For developing economies, including Pakistan, this complexity is doubly dangerous. Growth in the Global South has historically ridden the coattails of open trade, capital flows, and commodity cycles. Now, with a flipped interest rate cycle, declining aid flows, and a global turn inward, that model is under pressure. And while the wealthy world debates reshoring and AI regulation, developing countries are facing food inflation, energy volatility, and climate shocks without the fiscal space to absorb them.
The point is not that growth will vanish. It won't. But its sources, reliability, and beneficiaries are shifting. If the coming decade is marked by structural fragmentation and political brinkmanship, growth will become a more selective story—dependent on stability, institutional strength, and geopolitical alignment.
Brende's message, then, isn't just a warning. It's a challenge to policymakers who still act like the post-2008 playbook applies. It doesn't. The new normal is one of overlapping crises, diminishing buffers, and increasingly short market patience. Anyone not preparing for that reality is setting themselves up for failure.
Copyright Business Recorder, 2025