Figure 1: _{Emerging trading blocs? (Source: Aggression against Ukraine: resolution / adopted by the General Assembly)}³

^{1) World Economic Outlook, IMF
2) QBE /Hesmur Research – Data source: General Administration of Customs
3) Data source: United Nations Digital Library}

The steady shift east in the global economic “centre of gravity” and the increasing power and sophistication of the growing economies in Asia is well documented. These countries are no longer just providers of low-cost goods and components, but instead world leaders in hi-tech fields such as telecommunications and pharmaceuticals with rapidly growing middle classes. This shift is expected to accelerate with these countries predicted to out strip the recovery of the more established G7 countries.¹

In addition to the terrible humanitarian and wider economic impacts of the war in Ukraine, it has also impacted traditional trading relationships. There has been clear polarisation of the western and Russian trading blocs, but also the emergence of a less aligned group that have continued to trade in both camps. The largest of this group, China, saw overall foreign trade increase 10.1% from January to April 2022 reaching 1.98 trillion USD with a widening of the trade surplus with the US and a 25% increase in trade with Russia.²

But, with concerns in the western trade bloc about China’s own expansionist ambitions this trend could change. Navigating and adapting to this uncertain landscape, particularly across the less aligned countries, will be critical to succeeding over the upcoming years.

^{4) QBE/ Hesmur Research – Data sources WTO, World Bank, UNCTAD, OECD}

While the continued focus on supply chain resilience and increased transportation costs will keep this topic front of mind, there is little indication yet that the short term rise in “Trade Independence” observed in 2020(See Figure 2) has taken hold as a long-term global trend.⁴

But there has been a rise in internal consumption and trade within established trading blocs in several key areas, (though this trend is far from uniform). More recently, this has been accelerated by the impact of the war on energy sources and certain commodities. But finding regional substitutes will not happen overnight.

Supply Chain Disruption

Supply chain issues continue to impact global trade flows. While initial issues with shipping and storage supply have started to subside the longer-term impact of elevated transportation costs have started to take hold. Rather than just a short-term reaction to the supply demand mismatch, this has been driven by sustained increases in fuel cost exacerbated by the war in Ukraine impacting the overall cost structure.

In addition to contributing to the cost of transporting goods, the war has also contributed to availability issues for several goods and raw materials. From neon used in microchip production to sunflower oil and wheat, all have been directly impacted by the war.

Public policy changes

As we begin to emerge from the pandemic the global economy is also likely to navigate several public policy transitions. Fiscal stimulus packages rolled out during the crisis are being phased out and moving towards greater fiscal restraint. In response to inflationary pressures countries are also beginning to raise interest rates which will have knock on effects throughout the economy. The combination of high inflation and lower growth limit the public policy options available, adding to future uncertainty. As this uncertainty increases, we can also expect a tightening of credit conditions which could further impact the recovery and ultimately trading relationships.