Protectionism and geopolitical disruptions challenge global economic recovery

Global economic recovery is influenced by a variety of interrelated factors that contribute to revitalising economic growth and stability.
Obviously, these factors vary depending on the nature of the economic downturn. Essentially they include government policies and stimulus measures, global trade and supply chains, consumer and business confidence, energy and commodity prices, resilient financial systems and labour market recovery among others.
International trade has displayed extraordinary volatility in recent years, according to the region’s top bank Qatar’s QNB. After the sharp collapse in trade volumes in 2020 resulting from the Covid-pandemic, a strong rebound took place in 2021 as the pandemic gradually receded and the global economy began to progressively reopen.
Afterwards, a challenging environment emerged amid rising interest rates, high inflation, and geopolitical instability, QNB noted recently.
These negative conditions resulted in a sharp deceleration of trade activity in 2022, which was even more disappointing in 2023, displaying a highly unusual contraction.
During the last 40 years, a contraction in real trade volumes had only been recorded in 2009 as an aftermath of the Global Financial Crisis (GFC), and in 2020 with the dramatic disruptions caused by the Covid-pandemic.
While some of the headwinds remain relevant today, including a challenging geopolitical environment fraught with protectionism and logistical disruptions, a moderate recovery began to take place this year.
In QNB’s view, although global trade growth will remain below the long-term pre-Covid pandemic average, the recovery is set to continue in 2025.
According to analysts, government spending on infrastructure, healthcare, or direct financial aid to businesses and individuals helps stimulate demand across the globe.
In order to increase liquidity and encourage borrowing and investment, central banks around the world need to reduce interest rates or implement quantitative easing.
Economic recovery often hinges on renewed confidence among consumers and businesses. Higher confidence leads to increased spending and investment.
Restoring and strengthening global trade relationships is critical, especially if supply chains were disrupted during the downturn.
Trade agreements and reduced tariffs facilitate smoother international commerce, analysts say.
Another major contributing factor to global economic recovery is a resilient financial system. A well-functioning banking sector ensures that credit flows to businesses and consumers.
Regulatory measures to stabilise financial markets prevent economic shocks from worsening.
Equally important is technological innovation that drives productivity and opens up new industries, creating jobs and economic opportunities.
Digital transformation obviously helps businesses adapt more quickly to new market realities.
In a recent economic report, QNB noted that if there is no major escalation in protectionism and geopolitical disruptions, it expects growth in volumes of trade to continue to recover, increasing to 3.2% in 2025, from an expected 2.8% this year, amid positive leading trade indicators, aggressive economic stimulus measures in China, and the policy interest rate cutting cycles in advanced economies.
Global economic recovery is usually a combination of these factors working in tandem, and their effectiveness depends on the underlying causes of the downturn, such as financial crises, pandemics, or geopolitical conflicts. Each recovery is unique, shaped by the specific circumstances and challenges faced by economies.