US, China and EU to shape post-covid world economy: Moody’s

The US, China and the European Union (EU) will shape the post-pandemic world economy as key pillars of a tripolar world due to a hardening of attitudes during the coronavirus crisis, and the compounding of existing trends, Moody’s Investors Service said.

The task of repairing and rebuilding domestic economies will lead countries to increasingly focus on self-sufficiency, especially in strategic industries while competition and conflicts in technology, trade and politics will continue or intensify, Moody’s said in an analysis on Tuesday. It also said political considerations will influence global investment and capital flows.

Moody’s did not name India in the report, but the Narendra Modi administration is on a drive to improve self-reliance to both steer the economy out of the current crisis as well as to avoid future supply disruptions. India is offering production incentives to global firms setting up factories in India and has in recent months stepped up tariffs on imported items like television parts. Electronics and mobile phones are sectors the Modi administration is keen to step up local production capacity for which tariff measures are also employed.

The Moody’s analysis said that the interests of the three pillars—the US, China and the EU—will continue to diverge. The economies of the US and China will not decouple but will become more disengaged, while the EU will remain a proponent of a rules-based global trading system but will likely be pushed in a more protectionist direction.

“Full-blown confrontation between the three pillars is unlikely given their interdependence and some degree of global cooperation on issues such as climate change and pandemics will remain,” said the report.

Trade relationships will increasingly have a regional focus given the attention countries are giving to supply chain resilience, the report said. The Belt and Road Initiative (BRI) will continue to be a major instrument of China’s trade policy, it said.

“The US, China and the EU have vital importance in shaping the world economically, politically and strategically through their economic size and resources,” the report said, adding that together, they account for about half of both global gross domestic product and trade in goods.
Source: LiveMint