Globalisation likely to level off
The coronavirus crisis is a major blow to international trade. Danske Bank’s head economist Pasi Kuoppamäki predicts that the crisis will accelerate digitalisation and automation in shipping as well. “The pandemic has revealed how unreliable people are
as a ‘production factor’,” he says.
The coronavirus crisis is impacting international trade, and thereby shipping, in many ways. It is very rare for GDP to decline on a global scale.
“The coronavirus has been a shock to the global economy. Recovery will definitely take a long time, and the world will not immediately be able to return to pre-crisis productivity,” says Pasi Kuoppamäki.
He says that the crisis will also have longer-term effects. Simply due to trade wars, many operators across the globe had already begun rethinking their subcontracting chains.
“They’re starting to diversify their procurement through multiple sources. The coronavirus will certainly strengthen this approach: that your deliveries cannot be dependent on a single supplier or a single country.”
Many countries are also paying attention to security of supply and the availability of certain critical products, such as pharmaceuticals and healthcare equipment.
“They’re now trying to produce these things themselves, rather than buying from abroad. In that sense, international trade is changing.”
Not a death blow for globalisation
As countries aim for more localised and independent production, globalisation will slow down. However, Kuoppamäki does not think that the coronavirus will deal a death blow to globalisation.
“We can initially recover from the crisis fairly quickly, as goods begin moving again, but it will be difficult to reach pre-coronavirus levels. In a way, globalisation will likely level off as a result of the coronavirus,” says Kuoppamäki.
He reminds us that globalisation has brought plenty of good things and increased living standards worldwide. It has provided employment to millions of people in emerging economies and more affordable commodities to those in developed economies.
“The global division of labour has greatly increased living standards and I don’t believe that it will end here. International trade will continue, although its form may change slightly.”
A return to local production will not necessarily be possible for a country the size of Finland. You can’t do everything yourself.
Kuoppamäki thinks that this is something that must be examined at EU level.
“The EU could play a greater role in security of supply in the future. Hopefully, European countries will be able to pull together on such issues. That is, the EU would seek to ensure that Europe has sufficient materials and components for the manufacture of critical items. The United States will no doubt take a similar approach on this issue,” he says.
The coronavirus will therefore underline the need for deeper European integration. However, the EU has not shown its best side during the crisis.
“The European Central Bank has kept euro countries together and has sought to alleviate the impacts of the economic crisis, but the majority of other measures have been purely domestic,” notes Kuoppamäki.
People are unreliable
Kuoppamäki sees signs that the coronavirus crisis is accelerating digitalisation and automation in many areas.
“When it comes to international trade, there’s undoubtedly an increasing need for goods to move without human power. The pandemic has revealed how unreliable people are as a ‘production factor’. This will lead to the increased use of machinery, and there will also be a greater need for these machines to be remotely controlled. This could have quite a major impact on labour markets,” says Kuoppamäki.
More localised production may therefore mean automated jobs. Kuoppamäki cites an example from the United States, where the Trump administration is striving to bring outsourced production back home to the US.
“New production is indeed coming to the United States, but it is not as labour-intensive as they hoped for and expected. New factories have long been highly automated.”
Yet Kuoppamäki says that more jobs will still be created, and not just for robot programmers.
“The service sector still needs a human workforce. Although a temporary gulf has now been created between people, people are still craving each others’ company. In that way, entertainment and culture will also manage.”
Although some commodities may be in short supply in the aftermath of the crisis, thereby leading to upward price pressures, Kuoppamäki does not believe there will be a dramatic rise in inflation.
“There won’t be high inflation in terms of consumer price indexes. Getting a haircut hasn’t got more expensive. But grocery prices may rise. If there simply aren’t any seasonal workers to pick fruit or berries, this may be reflected in prices.”