Russia’s exit from global trade and the structural slowdown in Chinese domestic demand: Two major recent developments for the global economy

The global economy is facing two major structural shocks: Russia’s exclusion from global trade, which is likely to be long-lasting: there is no sign of a rapid withdrawal of sanctions against Russia. The result is a lasting scarcity of oil, natural gas, metals and agricultural commodities; The structural slowdown in domestic demand in China, due to population ageing and also overindebtedness, which leads to higher savings and makes the usual stimulus policies less effective. The result is a sustained slowdown in global trade and growth. We see that these two shocks generate a stagflationary process for the global economy: higher inflation due to various scarcities, lower growth due to weak growth in domestic demand in China.