European Central Bank Warns World Economy ‘Fragmenting Into Competing Blocs’

Geopolitical tensions are increasingly “deglobalizing” the world economy, an official with the European Central Bank has emphasized, highlighting the looming effects of climate disasters and the decline in working-age population.

European Central Bank (ECB) President Christine Lagarde warned in a speech delivered in Frankfurt on Friday of the increasing polarization in the global economy.

“There are increasing signs that the global economy is fragmenting into competing blocs,” Lagarde said at a session of the European Banking Congress. The French economist warned of the three major challenges of “deglobalization, demographics and decarbonization” facing the continent’s economy in the coming years.

“As new trade barriers appear, we will need to reassess supply chains and invest in new ones that are safer, more efficient, and closer to home,” added Lagarde. “As our societies age, we will need to deploy new technologies so that we can produce greater output with fewer workers.”

Demographic change is a major challenge facing Europe, where birth rates have been declining for several years. The dynamic will result in a reduction of size in the working-age population as early as 2025, according to analysts.

Additionally, workers across the continent are increasingly facing financial challenges. Only 41% of French millennials and 31% of millennials in the UK own their own homes, according to recent figures. This compares to 70% of millennials in China who enjoy homeownership.

Greater percentages of people in European countries have also shown to require financial assistance from their parents in order to buy a home.

The BRICS economic bloc of Brazil, Russia, India, China, and South Africa recently expanded this year to include Argentina, Egypt, Ethiopia, Iran, the United Arab Emirates, and Saudi Arabia. The Beijing and Moscow-led initiative has become increasingly important since its creation in 2009.

Analysts predict the trading bloc will comprise nearly half the world’s economic activity by 2040. This would make the bloc’s economic output twice the size as that of the G7, which is dominated by Western European nations.

Despite rising political tensions more recently, Germany and Russia had been solidifying economic integration in recent years with Russia providing much of the natural gas fueling Germany’s industrial output.

US President Joe Biden previously vowed the US would “bring an end” to the Nord Stream 2 natural gas pipeline that connected the two countries if Russia acted to address the threat posed by a Russophobic government in neighboring Ukraine. The Nord Stream 2 suffered an explosion later that year that took the pipeline out of service, in what is widely thought by many to have been an act of sabotage secretly directed by the United States.

The US has historically feared cooperation between Germany and Russia, the two biggest powers in Europe.

Lagarde also advocated for a Europe-wide regulatory agency to oversee economic activity across the continent, similar to the United States’ Securities and Exchange Commission. Additionally, she floated the idea of a unified European stock exchange.

The trend towards increasing economic integration may face opposition from various elements within Europe, who warn of a “democratic deficit” in the European Union and oppose moves they see as threatening national sovereignty. That opposition was perhaps most famously reflected in 2016, when voters in the UK chose to exit the economic and political bloc.