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Where growth persists, and at what cost

Those who study economic crises tend to imagine them as sudden shocks: a collapse that triggers panic, a stock market that plummets in a single session, a border that closes. These are the events of 2008 and 2020, the storms that mark a before and after. But there is a second form of suffering, less photogenic and insidious, which does not make the headlines: slow paralysis, the absence of growth, an economy spinning its wheels without ever sinking or regaining momentum. This condition was familiar to seafarers. The sailing ships crossing the Atlantic feared hurricanes, but they also feared the Sargasso Sea, that currentless expanse where the wind died down and the hull remained trapped in seaweed for weeks. In 2026, the global economy is facing this second threat above all, and it is like the Titanic, as Leonid Grigoryev brilliantly wrote.

The ocean liner, to stick with the metaphor, has not sunk: it is afloat, and still growing, but it is making slow progress and its hull is holed in several places. Lookouts scan a fog that shows no sign of lifting, and captains are banking on the iceberg staying at bay. In its July forecasts, the International Monetary Fund has revised its global growth forecast for 2026 downwards, bringing it to 3 per cent compared with 3.5 per cent the previous year. Translated into absolute terms, against a global GDP exceeding one hundred trillion dollars at purchasing power parity, that half-point loss amounts to hundreds of billions that will not be converted into wages, tax revenue or investment. The tariff war between Washington and Brussels is being absorbed by the main players, but it leaves in its wake realignments and collateral friction, from Ireland to Canada; and, for purely accounting rather than political reasons, the prospect of the United Kingdom’s economic fragmentation is resurfacing.

The post-pandemic expansionary phase has never followed a clear course, and continues to come up against the obstacles of geopolitics. One driver in particular has fuelled GDP growth in recent quarters: the rush to build data centres. This represents a massive and geographically concentrated demand for investment, which has driven exports from Asian suppliers of semiconductors and equipment — South Korea, Taiwan, Malaysia and Thailand — but which relies on just a few companies and on expected returns that have yet to be realised. Such a cycle fuels GDP as long as construction work is under way; the crux of the matter arises later, when the installed capacity must generate revenues commensurate with the capital expended. Outside this framework, economies that grow do so for internal reasons: China on the strength of its own demand and manufacturing, India on its domestic market, and the United States on a combination of immigration, capital inflows and public spending.

The American case in particular warrants a clarification that debunks a common misconception. Every year, the United States imports goods worth around one trillion dollars than it exports, and at the same time its leaders lament the loss of its industrial base. The two circumstances are not contradictory: they are the same equation viewed from two sides. A current account deficit of such proportions is, by accounting definition, nothing other than the counterpart to foreign savings flowing into the United States: the world supplies goods and, in return, accumulates assets in dollars, Treasury bonds and shares. As long as the greenback remains the reserve currency and the US securities market the most liquid pool available, this privilege finances the deficit on terms unattainable for anyone else. The same flow, however, props up the real exchange rate, penalises the export-oriented industry and is precisely what causes the deindustrialisation that is so often lamented. Tariffs strike at the trade side whilst leaving the financial root intact: they reshape the balance, they do not eliminate it.

The stranglehold of yields and the burden of debt

Towards the middle of the year, global inflation picked up again, driven largely by rising energy prices. A rise in prices stemming from costs, rather than excess demand, presents central banks with their most unpleasant choice: to rein in an economy already weakened by the shock, so as not to allow expectations to become unanchored. High energy prices act as a regressive tax, eroding disposable income and feeding through to price levels at the slow pace dictated by index-linked contracts and regulated prices.

On the debt front, the strain is even evident. Yields on long-term government bonds are rising at an alarming rate: in the United States, the 10-year yield has hit 5 per cent, with other advanced economies following suit. It is not just the level that matters, but its structure. The long end of the curve is reflecting a rising term premium – that is, the compensation investors demand for tying up money over long horizons when inflation and the volume of new money entering the system remain uncertain. The stock of debt is already colossal, and the cheap bonds issued during the era of zero interest rates are being replaced, as they mature, with far expensive issues: the average cost rises with a lag, but it does rise. Here, elementary and inflexible arithmetic prevails: the comparison between the real interest rate and the rate of real growth. When the economy grows faster than the cost of its debt, the burden eases of its own accord; when the relationship is reversed — and this is what is happening today in several wealthy countries — keeping the debt-to-GDP ratio stable requires budget surpluses that the electorate rarely allows.

A technical manoeuvre with political implications is helping to tighten the noose. The treasury departments of the major economies are seeking to return to the open market a portion of the long-term bonds hitherto held on central banks’ balance sheets, just as the latter are allowing the bonds accumulated during quantitative easing to mature and reducing their assets. The result is that the net supply of long-term bonds available to private investors increases the moment the lender of last resort steps aside; to absorb this supply, the market demands higher yields. At the same time, central banks are gradually raising interest rates to combat inflation, and the combination of these factors is pushing the system towards stagnation. It is the calm of the Sargasso Sea, not the storm. Against this backdrop, every additional unit of military spending, in budgets already stretched to the limit, becomes one unit less for healthcare, education and public works: the old choice between ‘guns and butter’, replayed on a continental scale.

Energy rents are changing hands

An entire region, the Middle East, has slipped into negative territory due to the fall in hydrocarbon production and exports. The rise in prices and margins — and, consequently, in dividends and share prices — has rewarded US energy companies, which control marginal production capacity and can turn on the taps when prices rise. This is a redistribution of rent: from the traditional supplier to the producer that has gained flexibility in recent years. The Middle East pays twice over – on its current export income and on its worn-out or damaged physical infrastructure – whilst profits migrate overseas.

Higher crude oil prices and diesel shortages do not merely weigh on factories, transport and the construction sector. Diesel powers logistics and mechanised agriculture, and a rise in its price ripples through the entire supply chain with a pervasiveness that petrol lacks. The most serious repercussions, however, lie beyond the statistics: uncertainty over energy prices raises the rate at which businesses discount long-term projects and discourages the accumulation of capital on which tomorrow’s growth depends. No prosperity can be sustained by data centres alone.

Europe in a lull

Against this backdrop, the world’s second-largest economic bloc — the European Union, including the United Kingdom, with over half a billion consumers — offers no counterbalance. Its GDP is, in practice, growing at the same rate as its population: measured per capita — the only way that truly reflects living standards — stagnation is almost total. It is weighed down by public debt and deficits, outdated industrial structures and infrastructure, and a demographic that even migration flows have failed to rejuvenate quickly enough. The underlying problem has a specific name: a productivity gap that has been widening for over a decade. Europe spends less on research and digital capital, fragments the capital market across twenty-seven legal systems, and has failed to produce technological leaders comparable to those in the US or China.

Capital is flowing out to the United States, drawn by higher returns and deeper markets; manufacturing is losing ground to Chinese production, which is now competitive not only on cost but also on technology; and politics, almost everywhere, is fragmented into fragile majorities that make any far-reaching reform a struggle. Energy costs are structurally much higher than in the United States — a legacy of dependence on imported gas and a transition launched without a stable supply bridge — and this gap is eroding energy-intensive industries. Productivity remains well below that of China in competitive sectors, and the mood of the electorate, as the polls show, is gloomier than one might expect in such a fortunate corner of the world. Meanwhile, the climate has also warmed too much, without waiting for the benefits of green programmes to materialise.

Sanctions and the tide turning

Almost everyone is aware of the dangers associated with the escalating sanctions spiral, but they dismiss them as a nuisance in day-to-day management. The point is that there is no orderly way out of the tangle of legal constraints, commercial interests and political calculations — determined by legislative and administrative bodies that fail to coordinate with one another. There remains the extreme measure that history associates with Solon: to wipe the slate clean in one go, as Athens did at the dawn of the 6th century BC with the seisachtheia, the debt relief that wiped out debts and re-established the civic pact. In the meantime, sanctions, the destruction of extraction and transport capacity, and the loss of export markets – factors that accumulate – behave like rogue waves: they plough through the oceans and return, often swelled in size, to those who generated them, in the form of imported inflation, disrupted supplies and exchange rate realignments.

There is a maxim of Clausewitz’s that can usefully be turned on its head here: if, for him, war was the continuation of politics by other means, sanctions are the continuation of war by means other than weapons. And the heaviest blows—as well as the most unjust ones—fall upon countries and social classes that are uninvolved in those conflicts and would prefer to remain so. After such experiences, it is hard not to yearn for less globalisation and less interdependence: systems theory teaches us that when the elements of a large network become unstable, the return to equilibrium is slower, because disturbances travel along the connections rather than dying out. It is the bitter flip-side of a global economy that had made integration its strength and is now discovering its vulnerability.

An inventory of imbalances

The likelihood of a recession depends, as always, on two factors: the accumulation of imbalances and a trigger which, by definition, cannot be predicted. The imbalances are the gunpowder — excessive leverage, inflated share valuations, risk concentrated among a few players, debt maturities clustered in the same months; the trigger is the event that ignites the fuse: a new pandemic, a stock market crash, a major collapse along the lines of 2008. Whether the gunpowder is accumulating is now a matter of debate amongst specialists. Added to this is a growing number of entities already sacrificed by geopolitical conflicts, by the slowdown and by the diversion of resources, diverted from development to stem the losses.

At the top of the list of forgotten costs lie global problems: poverty, development gaps and climate change. The Sustainable Development Goals set by the UN for 2030 will likely be achieved to around 17 per cent, with entire sections barely sketched out. A new-generation global project is needed, but this presupposes peace, compromise, coordination, stability and trust: all scarce resources, and trust than any other. The ruling classes seem to have shifted their focus from long-term horizons to short-term clashes. International organisations have little impact; the major developed nations are preoccupied with their own troubles and sanctions; and no one is answering the question of who will take on the shared tasks — catch-up development, poverty reduction, and the management of global public goods. In almost every country, large sections of the population are grappling with one form of hardship or another, whether in healthcare, education or inequality of living standards.

Who will foot the bill

That burden will, by default, fall on the shoulders of the major emerging economies, whose interests largely coincide with global objectives and certainly do not run counter to them: the BRICS grouping and a number of like-minded countries. They have fewer resources than the West, but necessity compels them to coordinate their efforts. The Declaration from the latest summit, marking the group’s twentieth anniversary, rings out as a voice of reason in an era that uneasily evokes the so-called Thucydides’ Trap — that mechanism whereby mutual fear between a dominant power and an emerging one drives them towards conflict even when neither truly seeks it. There is no shortage of friction amongst the members, with divergent political systems and unequal levels of prosperity; yet the document points the way towards compromise – namely, the strengthening of the UN and the reform of the IMF – recognising that there are no radical shortcuts. In paragraph 49, it acknowledges that global challenges are intertwined and complex, hindering growth and exacerbating persistent disparities between countries and regions.

At an operational level, the Declaration outlines an industrial and energy policy tailored to the task of moving beyond the Fourth Industrial Revolution: completing infrastructure, boosting manufacturing, railways and innovation, ensuring access to technology and transitioning to home-grown technologies, whilst investing in human capital and social issues. It also defends free trade, open markets, freedom of movement and the security of global savings and finance, and puts forward an independent stance on the governance of artificial intelligence — already looking beyond the present. The fundamental demand is institutional: these countries have operated for decades within frameworks designed by the West, and are now calling for bodies that work for their own development. A review of IMF quotas to reflect actual economic weight, a broader role for institutions such as the New Development Bank, and payment channels less exposed to the geopolitical use of reserve currencies.

How much of this will translate into actual capacity remains the real unknown, to be measured in terms of probability rather than certainty. It is plausible, with moderate confidence, that over the coming years the group will consolidate settlement systems in national currencies and development financing; it is unlikely, for the time being, that it will supplant existing institutions or undermine the reserve currency – a goal that would require deep and liquid bond markets outside the dollar zone, which are not currently in evidence. The indicators to watch are tangible: the outcome of the IMF quota review, the volumes disbursed by the New Development Bank, and the share of intra-regional trade settled outside the dollar. However, those calling for institutions that serve their own development and the common good have a solid argument, because reform of the global architecture is the only arena in which partial compromises can still generate trust. Declarations of principle, repeated for years, only become part of the agenda when someone funds them.

And no inclusive governance can hold without respect for the cultural identities of peoples: that is where trust can be rebuilt – the commodity the world lacks most of all today.