How Long Can the Global Economy Keep Growing?

In 2019, there was one question I got asked more than any other—how long can the world economy continue humming along in our deteriorating geopolitical environment? Worth reflecting on that as we approach the end of the year. 

I’m not an economist, so I take at face value the International Monetary Fund’s (IMF) call that there won’t be a global economic recession in 2020. But it’s clear that growth is slowing throughout the world, particularly in mature economies. Take the US—in a typical year the world’s largest economy has a roughly 11% chance of a recession. Economists now calculate the risk of the US tumbling into recession at around 25-30% over the next 12 months. History teaches that all economic recessions are unexpected in the moment they actually hit, but it’s safe to say we’re now entering the negative part of the economic cycle after more than 10 years of uninterrupted economic growth.

When it comes to geopolitics however, we’ve already been in “recession” for several years. The 2008 financial crisis marked the last hurrah of the US-led international order, when world leaders worked in close coordination to avoid a doomsday scenario; the state of global and national politics has been on a downward trajectory ever since.

In such a world—one with an economic cycle in decline set against a deepening geopolitical recession—the probabilities of longshot geopolitical risks turning into full-blown geopolitical emergencies jump up dramatically. We live in a world full of these geopolitical tail risks; low-probability events that will have massive impacts on politics and markets should they come to pass. Individually, these risks remain very unlikely; collectively, the probability of any one of them hitting and upending markets and politics as we know them grows with each passing day.

So, what are these tail risks? Let me run through a few of the one’s that are most worrying me at the moment:

• Cold War 2.0: Substantial escalation in the economic and technology spheres between the world’s two largest economies throws global trade off a cliff and destabilizes existing global technology supply chains.
• US-Iran conflict: Iran kick-starts an accidental conflict through its continued ramp up of its nuclear program; aggressive actions by Tehran’s proxies in the Middle East could also trigger conflict as well.
• US-Russia cyber war: Relations between the two countries are at their worst level in three decades, and an offensive cyber move by either side (both of whom certainly have the capabilities) could lead to a rapidly escalating series of counter-attacks with far reaching consequences for their economies… and in the case of the US, its politics going into an election year.
• China vs. Hong Kong: Resilient protests of pro-democracy groups in Hong Kong have set the stage for a prolonged stand-off with China, raising the risks of direct Chinese intervention, with significant economic blowback to China’s relations with the US, Europe and with key countries in the region including South Korea and Japan.
• Turkey: Facing swelling domestic and international pressure, President Erdogan takes extreme risks to consolidate his power such as further incursions into Syria and moving from exploration to extraction of gas in the Eastern Mediterranean, leading to the possibility of military escalations on both fronts and further isolation of the Turkish economy.

And plenty of others. To be clear, I’m not arguing any one of these things is likely to happen. But as the geopolitical recession deepens with time, it becomes more and more difficult to believe that the world will continue to dodge these kinds of low-probability, high-impact political events. In normal times, these risks have a 1-5% probability of hitting; over the coming years, that figure is closer to 10-30%. Put another way, we should begin bracing ourselves for the reality that one or two of them will happen. Markets have not begun factoring that in yet, which is a challenge for everyone… and an opportunity for those who position themselves accordingly. 

Ian Bremmer is president of Eurasia Group, foreign affairs columnist at TIME and teaches at Columbia University. He also serves on the Editorial Board of the Cayman Alternative Investments Summit (CAIS) and will be delivering the keynote of the Summit in Grand Cayman on February 6th and 7th 2020, where discussions will focus on the theme “Global. Digital. Responsible.” You can follow him on Twitter and Facebook.