Download the full report Facing the Challenges – Three Scenarios for Global Economic Governance in 2020 (24 pages).

Introduction

Drawing from a variety of backgrounds in the public and private sectors, as well as economics and politics, our working group – comprised of young professionals from China, Germany and the US – designed three scenarios that depict global economic interaction in 2020. The scenarios are meant to provide conjecture only and are in no way predictive. The exercise provided a platform to think of ways in which the global economy could develop, be they better or worse. From these three scenarios, we formulated a series of policy questions that will need to be answered in the near future.

In this paper we focus primarily on the key conclusions from the scenario exercise. These conclusions represent the result of a year long working process. Each scenario is briefly presented here.

The first scenario depicts a vibrant global economy with the normalization of balances of payments as well as stronger and more sustainable levels of economic growth across the board. The second scenario depicts economic blocs based on regions that interact in a fragmented global marketplace. The third scenario is a global economy fraught with political hostilities and major impediments in the global market. Each is detailed in this report. By fleshing out the scenarios, in particular the themes and triggers that helped construct them, we drew insights with implications for contemporary policymaking.

A series of stages and triggers form the axis to explore possible futures. The stages represent overarching trends, while the triggers are key transitional moments that provide a catalyst and facilitate momentum. The stages and triggers are not consistently weighted across the scenarios. The differentiation is reflective of the uncertainty of forecasting and scenario building. As noted above, the goal is to formulate potential outcomes in order to stress test global economic interaction and thus generate debate on key challenges that the world faces in global governance. It must be emphasized that these scenarios are illustrative and not predictive. Through this process, we hope to create a policy dialogue that is directive rather than reactive.

We singled out crucial factors that will influence the path of the global economy in the future. Our analysis honed in on four factors that drive patterns in the global economy across each of the three scenarios:

• Trade liberalization: Maintenance of liberal trade routes shapes scenario 1, but protectionism forces the creation of trading blocs in scenarios 2 and 3.
• European Union consensus and consolidation: Meanwhile, the success of the EU’s effort to deal with its debt crisis proves to be an important consideration for future trends in sovereign debt and credit markets.
• Chinese domestic consumption: The speed and ability of the Chinese to implement reform affect the global economy in two ways. If the Chinese implement reform under domestic pressure, the global economy will benefit. But if Chinese reform is pressured from changes in the external economic environment, the subsequent impact on global commerce could be costly. Similarly, regional integration in Asia will depend on Chinese engagement at the international level and the ability of Japan, China and Korea to work together.
• US domestic economic restructuring: The global economy’s stability will largely depend on whether the US is able to overcome static institutions and develop an economic policy appropriate for the 21st century. US economic resurgence can help facilitate a more peaceful rebalancing of the global economy, but the inability to deal with core issues could create instability and volatility at the international level.

We recommend that policymakers consider these key factors and how they might lead to both positive and negative outcomes when making policy decisions. Our year-long exercise with scenario planning has provided a platform from which specific questions arise, which could in turn drive policy-related insights. To help bridge the transition from imagining possible futures to understanding implications for policy planning, we highlight key questions derived from our exercise at the end of this report.

Download the full report Facing the Challenges – Three Scenarios for Global Economic Governance in 2020 (24 pages).