Let’s just hope that we are not about to bid goodbye to all that. Globalisation has suffered a mighty blow in wake of the Ukraine crisis, and the worry is that the age of peace and prosperity enjoyed by most major nations since the end of World War II is suddenly under threat. Our global interconnectedness has taken a step backward and hopes for seamless trade in goods, capital and labour have been badly undermined by the rapid imposition of sanctions on Russia and its wider implications for the future. It is not just global confidence which has taken a hard knock, but also the perception that political, economic and financial stability will bounce back soon. The world may be on the verge of a new phase of potential market strife where output, trade and price stability will be less certain and subject to greater volatility. The key question is whether the global economy can withstand another shock so soon after the Covid-19 crisis. All our expectations of high growth, modest inflation and low interest rates established over the last three decades are at risk, with the spectre of the oil-shocked, stagflation-bound 1970s and 1980s looming yet again. If the Ukraine crisis drags on much longer and higher energy prices stick, then annual global growth could easily stagnate back towards the 2-3 per cent range, compared with the 3.5 per cent long term average since the 1960s. On the positive side, if raw material prices stay strong, commodity producers and cartels like the Organisation of the Petroleum Exporting Countries will hold the whip hand again, with a return to 1980s-style oil surpluses being recycled back into global financial markets, providing continuing support for investor exuberance. Stagflation may dominate, but with global liquidity levels riding high, stock markets will still flourish, albeit in a much more volatile environment. The world economy has been through the wringer since the 2008 financial crash, the 2009-2012 European debt crisis and the recent Covid-19 pandemic, which have sapped global growth potential over the years. At the same time, global protectionism has been on the rise and multilateralism has been on the wane, exacerbated by the outbreak of trade tensions between the US and China in 2018, after former US president Donald Trump levied trade tariffs on Chinese goods and Beijing responded in kind with retaliatory measures of its own. The ensuing triangle of trade tensions between the US, China and Europe in the last four years couldn’t have come at a worse moment for a world economy in dire need of a clear road to faster recovery. Barriers to trade have gone up, protectionism has spread and world trade flows have suffered at the expense of developing nations anxious for a bigger slice of global business activity to support stronger growth, faster job creation and greater prosperity. As the US-China trade war intensified, world trade growth in goods and services slowed dramatically from 3.9 per cent in 2018 to 0.9 per cent in 2019, before the Covid-19 crisis sparked an 8.2 per cent collapse in global trade flows in 2020. World trade growth subsequently recovered to 9.7 per cent last year, but the Ukraine crisis casts a dark shadow over the outlook for sustainable recovery over the next few years. It’s safe to say growth expectations will be severely downgraded this year as economic optimism fades. It’s not only the impact of the Ukraine crisis on trade, inflation expectations and confidence that will do the damage, but also the prospect of tighter monetary policy ahead. Last week saw the US Federal Reserve’s first move to higher interest rates with a 0.25 per cent hike in its benchmark Fed funds rate, while the UK’s Bank of England raised rates for the third time in three months to 0.75 per cent with inflation risks soaring. Don’t expect any Ukraine truce to inspire a stock market ‘relief rally’ For hard-pressed developing nations facing the risks of slower global growth, rising imported energy prices and wider trade deficits, higher borrowing costs simply add to their debt financing burden. If there was ever a moment for supranational agencies like the International Monetary Fund, the World Bank and the United Nations to step in, now’s the time. It’s not just about offering more development assistance and better debt relief terms, but preserving global peace and stability at the same time. The world is crying out for a lucky break. David Brown is the chief executive of New View Economics