Is globalization as we know it over? 🌎

[Goldman Sachs]( [BRIEFINGS] May 12, 2022 Is (De)globalization Ahead? Amid the Russia-Ukraine conflict, COVID-19 lockdowns and associated supply chain disruptions, globalization is arguably facing its biggest test of the post-Cold War era. In [this episode of Exchanges at Goldman Sachs]( Adam Posen, president of the Peterson Institute for International Economics, Dani Rodrik, professor at the Harvard Kennedy School of Government, and Jim O’Neill, former chairman of Goldman Sachs Asset Management, discuss where globalization is headed from here and what that could mean for society, the economy and markets. This episode is based on Goldman Sachs Research’s [latest Top of Mind report, “(De)Globalization Ahead?”]( The world is likely to split into two economic blocs. “We are arguably moving into a world where there is going to be much more deliberate alignment into Chinese and American economic blocs,” Posen tells Exchanges host Allison Nathan. “A number of countries, either voluntary or not, are going to be increasingly forced to choose…It doesn't prevent a certain country from deciding it wants to do a deal with Europe or China. It doesn't prevent an individual business from getting bigger. But I think we are on a more accelerated path of having holes in the fabric of globalization. I think those holes are getting bigger and more frequent.” Retrenching from “hyperglobalization” could be good. “I don’t think a significant decoupling of the world economy or significant disintegration is in the cards,” Rodrik says. “We're just talking about a natural, in many ways, a desirable retrenchment from what I've called hyperglobalization, the kind of globalization we had in the last few decades. My guess is that we will try to find a happy medium that avoids some of the excesses of hyperglobalization and the dangers of autarky.” The era of globalization may not be over after all. “There is no evidence to support this fashionable notion of deglobalization,” O’Neill says. “Last year, global trade growth accelerated sharply, so much so that it was back above the trend line of what was going on pre-2008…So, I'm very, very dubious about this view.” [Listen to podcast]( [Read report]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Is%20(De)globalization%20Ahead%3F&body=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DKWcgQVCwyf0) As the Fed Tightens, Brazil Feels the Pinch Like many countries, Brazil faces a challenging mix of slowing economic growth and soaring inflation. But what makes Latin America’s largest economy different from other nations is that its central bank has lifted its benchmark rate 10-straight times to one of the highest policy rates in the world. Such high interest rates mean that tight financial conditions and sluggish economic growth are among the key challenges for Brazil, which is gearing up for a presidential election later this year, according to Alberto Ramos, head of Latin American Economic Research at Goldman Sachs. We spoke with the former senior economist at the International Monetary Fund about the risk of stagflation in Brazil and what he plans to explore on May 16 at Goldman Sachs’ Brazil Macro Conference in São Paulo that will host many of the country’s most influential policy makers. What is the biggest challenge for Brazil right now? Alberto Ramos: Now that the pandemic has mostly moved into the rearview mirror, Brazil continues to face the endemic issues of low investment, low productivity, low growth. Perhaps the most notable aspect of Brazil is that it continues to underwhelm on the growth front. Excluding 2021 — when growth rebounded from the sharp contraction in 2020 — the last time Brazil grew more than 3% was 12 years ago, and granted 3% is not a particularly impressive number. That is the main macro challenge: to fix the broken engine of growth to deliver faster, more inclusive growth and, at the same time, to overcome perennial fiscal vulnerabilities which in and of themselves are undermining the growth dynamics. Investment spending has been notoriously low in Brazil as a share of GDP. So the big challenge for whoever gets to govern the country next year is to accelerate investment and growth. Slow social and economic progress for many years and diminished expectations with regards to the future generate social and political pressure and weaken governability. That is one of the key issues that comes up repeatedly in discussions with investors. How high are the risks of stagflation and recession for Brazil? Alberto Ramos: Stagflation is no longer a risk — it’s a reality. Brazil’s inflation has been high, and growth, which has been mediocre since the second quarter of 2021, is expected to remain weak throughout 2022. The risk of a recession is significant, particularly in the second half of the year given the tightness of financial conditions. And as you exhaust the gains from the reopening of the economy post-COVID, we may see growth at the margin approaching zero and eventually dipping into negative territory. [Learn more about Brazil's complex economic situation and Goldman's upcoming conference in São Paulo here.]( [Read more]( [Read more Q&As]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Brazil%20wrestles%20with%20stagflation%20as%20the%20Fed%20starts%20tightening&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fseries%2Farticles%2F) Japan Has a Currency Problem. Or Does it? The Japanese economy has been an outlier of late. While other countries have hiked interest rates, Japan has kept them low. While prices around the world have risen, inflation has been modest in Japan. On top of that, the yen has plummeted in value, losing around 12% against the U.S dollar. It is the worst performing major currency this year. But for Zach Pandl, Goldman Sachs’ co-head of Global Foreign Exchange, Interest Rates and Emerging Markets Strategy Research, [a weakening yen might not be such a worrying sign](. He expects the yen’s depreciation to be short-lived. • The recent depreciation of the yen is due to short-term cyclical factors: the prolonged impacts of COVID-19, an increase in global commodity prices and rising bond yields in the U.S. and Europe. • For years, the Bank of Japan has been trying to stamp out deflation. Moving inflation closer to the central bank’s 2% target would mark a big achievement for the country and open up more flexibility in policy. If global inflation does remain high, low interest rates in Japan will likely move up towards the level of other countries. • Crucially, Japan is a wealthy nation and has a large stock of foreign assets. The country holds about $9.6 trillion in foreign assets compared with liabilities of about $6.5 trillion. Put simply: The country isn’t vulnerable to a large outflow of money. • A rebound in the yen over time is likely and remains a “haven” asset during times of rising recession risk and other global uncertainties. [Read more]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Japan%20has%20a%20Currency%20Problem.%20Or%20does%20it%3F&body=https%3A%2F%2Fwww.goldmansachs.com%2Fbriefings%2Fimages%2Femail%2FBrainteaser_530x300_jpg.jpg) Asian Heritage Month: KKR Co-CEO Joe Bae Talks Fighting Anti-Asian Hate Above (L to R): Alison Mass of Goldman Sachs and Joe Bae of KKR In an [episode of Talks at GS]( Joe Bae, co-CEO of global investment company KKR and a founding member of The Asian American Foundation (TAAF), discusses how the pandemic and war in Ukraine have changed the markets. He also outlines his work to combat anti-Asian discrimination and violence. On the war in Ukraine’s impact on energy security and the transition to green energy: “I think energy security has been elevated as a concern around the world as much as energy transition and decarbonization. And I think what that means is you’re going to have to have a very responsible and pragmatic approach to how do we transition to net zero. And a part of that solution will be natural gas. Energy demand is growing in the world. You can’t not invest in natural gas if you’re going to have an orderly transition at reasonable costs to consumers for energy. There may be a meaningful acceleration in renewables. Certainly in our infrastructure business, we’ve invested $27 billion around those sustainable themes.” On charting the mission of TAAF: “Asian Americans don’t have the equivalent of the NAACP for the Black community. We do not have the equivalent of the Anti-Defamation League for the Jewish community. That needs to be built. And that’s really what fundamentally TAAF is trying to do. It’s focused obviously on anti-hate and the violence we’re seeing today. In New York City, in 2021, we’ve seen attacks on Asian Americans grow by over 360% in one year.” [Read about the successes and challenges facing Asian Americans in the U.S.]( This Asian Heritage Month, Goldman Sachs is celebrating the rich and unique stories from colleagues across our company. [In this video, Carlos, Jia, Nayeema, Phillip and Sayali tell us the significance of their names to their identities](. As [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Joe%20Bae%3A%20TAAF%20is%20a%20%E2%80%98multi-decade%E2%80%99%20initiative%20to%20support%20Asian%20Americans&body=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3D8yiiLq-udY8) BRIEFINGS Brainteaser: Bitcoin Gains Currency It's been a volatile week for cryptocurrencies with the likes of Bitcoin and Ethereum having large drops in value. But historically, fluctuations in price haven't always deterred investors and even countries from adopting digital assets. For this week's BRIEFINGS brainteaser, can you name the other country (aside from El Salvador) that recently made the move to accept Bitcoin as legal tender? A) Honduras B) Paraguay C) Zimbabwe D) The Central African Republic [Check your answer here.]( [Take the quiz]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=BRIEFINGS%20Brainteaser%3A%20Which%20countries%20have%20adopted%20Bitcoin%3F&body=https%3A%2F%2Fonegs.iad1.qualtrics.com%2Fjfe%2Fpreview%2FSV_eKE1ZVhKkYm8W6G%3FQ_CHL%3Dpreview%26Q_SurveyVersionID%3Dcurrent) Goldman Sachs Media Highlights Bloomberg - May 10 [Goldman says stocks look attractive in 6- to 12-month horizon]( (4:24) CNBC - May 10 [Earnings will be driving the market going forward, says Goldman’s David Kostin]( (4:39) CNBC - May 9 [We]( an ‘absolute collapse’ in earnings; demand is set to return, Goldman strategist says]( (1:34) CNBC - May 9 [Gas prices are headed ‘substantially higher,’ says Goldman Sachs’ Jeff Currie]( (3:15) [Subscribe]( [Unsubscribe]( Some of the images used in this newsletter are sourced via Getty Images. 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