日立綜合計劃研究所（HITACHI）：2025年世界經濟形勢和風險 World economic scenarios and risks to 2025

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Worldeconomicscenariosandrisksto2025

HitachiResearchInstitute

Gist

Thispaperexaminestheoutlookfor2025intheworldeconomyandvariouspossiblerisks.

Itishighlyunlikelythatasteadyworldeconomicrecoverywillcontinueforthenext3yearsupto2025.Asabasictrendinthemacroeconomicenvironment,uncertaintyhasnotabated,andinparticular,fortheforeseeablefutureof2022to2023,itisnecessarytoanticipatestagflation(thecoexistenceofinflationandeconomicstagnation)andrecession(deflationaryconditions)toareasonabledegree.

Pastexamplesoftheworldeconomyfallingintostagflationandthenreturningtoarecoverypathafterenteringrecessionincludethesecondoilshockinthelate1970sandearly1980s,andtheexperienceinthelate2000s,whentheU.S.housingbubbleandemerging-marketboomturnedintotheglobalfinancialcrisis.Inbothperiods,itcanbeseenthatacyclewasfollowedinwhichstagflationlastedforaboutonetotwoyearsinrealterms,followedbyeconomicrecoverythroughpolicyresponseandothermeasuresafterarecessionofaboutoneyear.Weassumethatthebasicscenariothrough2025,willfollowasimilarcycle,albeitvaryingamongcountriesandregions.

Factorsthatcouldaffecttheworldeconomyexistintheeconomic,social,andpoliticalfront.Ontheeconomicfront,thereisaninflationofwhichdurationislongerthanexpected,andcontinuedinterestratehikesinmajoreconomies.Onthesocialfront,thereisthepossibilityofanewpandemic,andwideningworldeconomicdisparities,throughwhichleadtosocialunrest.Onthepoliticalfront,thereisthecompletedivisionbetweenRussiaandtheWesteconomies,aswellasthecontingenciesinvolvingtheU.S.presidentialelectionandotherissues.Ifthese

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Introduction:Growinguncertainties

Whatwilltheworldeconomylooklikein2025?Althoughitisonlythreeyearsaway,giventhecurrentextremelyunstableworldsituation,itis,tobehonest,anextremelydifficulttasktoaccuratelypredictthecourseofevents.Theuncertaintyandinstabilitysurroundingtheworldeconomyappeartohaveintensifiedoverthepastthreeyears.

Lookingback,in2019,tradefrictionbetweentheUnitedStatesandChinafromthepreviousyearsuddenlyintensified,andthecompetitionforhegemonybetweenthetwocountries,includingadvancedtechnologies,raisedconcernsaboutdecouplingbetweentheUnitedStatesandChinaanditsimpactontheworldeconomy.

Thefirstphaseoftheagreementbetweenthetwocountriesattheendofthesameyearwasexpectedtoeasetheconfrontationandthesenseofuncertaintytosomeextent.Butin2020,duetotherapidspreadofCOVID19inChinaintheearlyspring,theworldeconomyinthefirsthalfofthesameyearfellintoapandemicrecession,whichwassaidtohavebeentheworstsincetheGreatDepression,albeitforashortperiodoftime.Althoughtheworldeconomyhasgenerallyrecovered,thanksinparttotheunprecedentedspeedofvaccinedevelopmentandvaccinationprogress,thesuccessiveemergenceofaseriesofmutantstrainshasmademanyregionsfacethechallengeofbalancinginfectioncontrolwitheconomicrecovery.

In2021,thesupplyshortageofvariousmaterialsincludingsemiconductorsintensifiedduetotheeffectoftighterrestrictionsonactivitiesaimedatcontrollinginfectionsinAsia.IntheUnitedStates,wheredomesticdemandisparticularlystrong,laborshortagesandlogisticalstagnationhaveplayedaroleinthedevelopmentofinflationatanunexpectedpace,forcingthegovernmenttoshiftitsmonetaryeasingpolicy.Theworldhasbecomeawareoftheincreasinginflationarypressureandadverseeffectsontheeconomycausedbyrisingpricesofnaturalresourcessuchascrudeoilandnaturalgas.

In2022,theworldeconomyoutlookhasbecomeevenmoreuncertainduetotheemergenceofanewgeopoliticalshockoftheRussianinvasionofUkraineinlate

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February,newwavesofCOVID19inChinasinceMarch,andtheimplementationofcitylockdownsinShenzhen,Shanghai,andotherareas.

ThefollowingisHitachiResearchInstitute'scurrentworldeconomicscenariosfor2025andtheriskstowhichspecialattentionshouldbepaid,takingintoaccountthecurrentuncertainpoliticalandeconomicsituation.

1.Thetwistsandturnsintheworldeconomyuntil20251.1Fromstagflationthroughrecessiontorecovery

Thefirstthingwecansaywithconsiderablecertaintyabouttheworldeconomicscenariofor2025isthatitishighlyunlikelythatasteadyeconomicrecoverywillcontinueforthenext3yearsorso.Intheprocess,itisassumedthatnotonlytheeconomybutalsopolicyresponsessuchastotheenvironmentandthedevelopmentofnewtechnologiessuchasAIwillmakesignificantprogress.Againstthisbackdrop,aswillbedescribedlaterinChapter4,therearesomedevelopmentsthatareexpectedtocontributetothegrowthoftheworldeconomy,suchastheexpansionofnewinvestmentsandrelatedbusinesses,asexemplifiedbydigitaltransformation(DX)andgreentransformation(GX).However,asabasictrendinthemacroeconomicenvironment,uncertaintyhasnotabated,andinparticular,fortheforeseeablefutureof2022to2023,itisnecessarytoanticipatestagflation(thecoexistenceofinflationandeconomicstagnation)andrecession(deflationaryconditions)toareasonabledegree.

Pastexamplesoftheworldeconomyfallingintostagflationandthenreturningtoarecoverypathafterenteringrecessionincludethesecondoilshockinthelate1970sandearly1980s,andtheexperienceinthelate2000s,whentheU.S.housingbubbleandemergingmarketboomturnedintotheglobalfinancialcrisis.Figure1showsthetrendsinglobalgrowthandinflationatthattime.Inbothperiods,theworldeconomyshowedincreasingsignsofstagflationduetotherisinginflationratecenteredonresourcepricesandthecorrespondingtighteningpolicy,andtheninflationsubsidedduetoweakdemand,resultingineconomicdepression.Itcanbe

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seenthatacyclewasfollowedinwhichstagflationlastedforaboutonetotwoyearsinrealterms,followedbyeconomicrecoverythroughpolicyresponseandothermeasuresafterarecessionofaboutoneyear.

Ofcourse,wecannotconcludefrompastexperiencethatwewillfollowasimilarpaththistime,butasshowninthelowerrightofFigure1,weassumethatthebasicscenariothrough2025,willfollowasimilar,albeitvarying,cycle.

1.2Prospectsforeachcountryandregion

Thebasicscenariosforselectedcountriesandregionsareasfollows.

U.S.:TheU.S.economy,markedbystrongdomesticdemandandrisinginflationarypressures,isexpectedtoslowdowntoacertaindegreein2023duetotheeffectsofmonetarytightening.However,thegovernmentdoesnotanticipateasetbackintheU.S.economyorarepeatofthefinancialcrisis.TherelativestrengthoftheU.S.economycomparedtootherdevelopedeconomieswillnotchangeuntil2025.Onthepoliticalfront,itisunclearwhatwillhappeninthe2024presidentialelection,butitisunlikelythatthepoliticalandsocialdivisionswillberepaired.

Europe:AlthoughtheEuropeaneconomythrough2025isexpectedtoreceivefinancialsupportsuchasthereconstructionfund,theeconomywillbedepressedespeciallyfrom2022to2023duetoanenergyshortagecausedbytheRussia-Ukrainewar.Onthepoliticalfront,theEUisexpectedtobecomemoreunitedinitspolicytowardRussia,butsomecountriessuchasHungaryareleaningtowardRussia,whichisafactorofuncertainty.

China:Althoughtheeconomywillbasicallymaintainstablegrowthby2025,itsgrowthpotentialisexpectedtograduallydecline.Activityrestrictionsremainduetothezero-COVIDpolicyin2022,andgrowthmayfallbelow5%.Evenafterthat,thebasicassumptionofgrowthpotentialtoward2025isabout5%.Worseningrealestatemarketconditionsandtheriskofdeepeningofthenon-performingloanproblemwillremainaconcernuntil2025.Inaddition,Chinaisexpectedtomaintaintheattractivenessofitsdomesticmarketbyacceleratingitsdualcirculationstrategy

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amidtheprolongedconfrontationwiththeUnitedStates,andtheinflowofforeigncapitalisexpectedtocontinue.

India:TheModiadministrationhaspledgedtoreachaneconomyof$5trillion(about￥640trillion)by2025($2.7trillionasof2020).Itwillnotbeeasytoachievethisgoal,butifvariouspolicymeasures,suchastheintegrationoftheelectronicsindustry(makingitaglobalhub)andinvestmentincentivesdesignedtopromotedomesticproduction,aresuccessful,itispossiblethattheywillhaveacertaineffectonstrengtheningthemanufacturingindustry.PrimeMinisterModiislikelytobere-electedinthe2024generalelectionsbecausehehasnomajorrival.

Japan:TheKishidaadministration,whichadvocatesavirtuouscycleofgrowthanddistribution,hasachievedacertaindegreeofsuccessincurbingCOVID-19,maintainingastableapprovalratingandreducingtheriskofareversiontoashort-livedadministration.However,withthepopulationcontinuingtodecline,thepolicyhurdleforexpandingtheeconomicpieishigh,andthepotentialgrowthrateisassumedtoremainnearzero.

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Figure1Worldeconomicgrowthandinflation

2.Economic,socialandpoliticalfactorsaffectingtheglobaleconomicoutlook

Inthischapter,thefactorsthatcouldaffecttheworldeconomicbasescenarioupto2025outlinedinthepreviouschapteraredividedintoeconomic,socialandpoliticalfactors,andthecurrentassumptionsandrisksconsideredbyHitachiResearchInstituteareexamined.

2.1Economicfactors

2.1.1Highglobalresourcepricesandrisinginflation

Thefirsteconomicfactorisinflation.AsofMarch2022,theconsumerpriceindexofOECDmembercountriesincreasedby8.8%fromthepreviousyear,thehighestinabout35years(Figure2).

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InadditiontostrongdemandforgoodsgeneratedintheprocessofrecoveryfromtheCOVID-19disaster,risingenergycostsduetohighresourcepricesandshortagesofsemiconductorsandothermaterialscausedbysupplychaindisruptionshavestronglyaffectedinflation1.Inaddition,wagesarealsorisinginsomedevelopedcountries,raisingconcernsaboutwiderinflationandprolongedhighinflation.

GiventhatthecurrentriseininflationincludesfactorssuchastheimpactofhigherresourcesandatemporarysurgeindemandduetotherecoveryfromCOVID-19,itisunlikelythathighinflationwillcontinueforalongtimelikeoverthenexttwoyearsormore.HitachiResearchInstituteforecaststhattheinflationratewillturn

1AccordingtoananalysisbytheFederalReserveBankofNewYork,thereisahighpositivecorrelationbetweentheproducerpriceindexesofOECDmembercountries.FederalReserveBankofNewYork(2022),"TheGlobalSupplySideofInflationaryPressures",LibertyStreetEconomics

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downwardin2023,basedontheassumptionofaneconomicslowdownin2023.

Theriskscenario,ontheotherhand,isafurthersharpriseininflationandalongerthanexpectedduration.Inotherwords,spiralingpriceincreasesanditsprolongationresultsfrom,amongothers,risingcommoditypricescausedbyrisingenergyandfoodprices,andabroadriseinservicepricescausedbyrisingwages.

2.1.2FRBandcentralbanksinothermajoreconomiesraisinginterestrates

Thesecondeconomicfactorismonetarypolicybydevelopedcountries.Inresponsetotheaforementionedincreaseininflation,centralbanksaroundtheworldbeganraisinginterestratesinsuccessionaroundthemiddleof2021(Figure3).InterestratehikesareacceleratinginCentralandEasternEurope,suchasPoland,andLatinAmerica,includingBrazil.Inbothregions,theaveragerateincreasesinceJanuary2021hasalreadyreached3.5%pt.

Inadditiontotheimpactofhighimportsofnaturalresources,thehikereflectsconcernsaboutinflationcausedbythedepreciationofthecurrenciesagainstthedollarandtheeuro.Furthermore,fromtheendof2021tothebeginningof2022,developedcountriessuchastheUnitedStates,theUnitedKingdom,andCanadaraisedtheirinterestratesoneafteranother.

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HitachiResearchInstituteforecaststhatmajorcountriessuchasthoseinEuropeandtheUnitedStateswillraiseinterestratesinearnestfrom2022to2023.TheEurozone,whichhasbeencautiousaboutraisinginterestrates,islikelytoraiseratesafterthesummerof2022duetohigherthan-expectedinflation.InterestratehikesinmajorWesterncountriesandregionsarelikelytospreadtosmallercountriesintheregioninordertopreventcurrencydepreciation,andinterestrateswillcontinuetoriseinNorthernEuropeandLatinAmerica.

Theriskscenariointhisregardisthatthepaceofrateincreasesbetween2022and2023willbefasterthanexpected.Itcouldbecomeapparentwhenspiralingpriceincreasesoccur.Inthiscase,excessiveinterestrateincreaseswillkilltheeconomy,andtheeconomicstagnationexpectedin2023willnotend,sothereisahigh

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possibilitythattherecessionwillbecomesevereandprolonginto2024.

2.2Socialfactors

2.2.1CoexistencewithCOVID19

ThefirstsocialfactoriscoexistencewithCOVID19.Approximately2yearshavepassedsincetheWorldHealthOrganization(WHO)declaredapandemicinMarch2020.

AsofApril2022,newinfectionsofCOVID19havecontinued,butthenumberofcriticallyillpatientshasdecreased,andtheimpactonsocialactivitieshasgenerallydecreased.Amajorchangeintheeconomicstructureduringthisperiodistheprogressofdigitization.Intermsofworkingstyles,telecommutingandonlinemeetingshavebecomewidelyused,andintermsofliving,onlinemedicalcareandonlineshoppinghavebecomeevenmorepopular.Socialandindustrialstructuralchangesduetotheprogressofdigitizationareirreversible.

HitachiResearchInstituteexpectsthatCOVID19willgraduallybecomeendemicduetocontinuedvaccinationandthedevelopmentanddisseminationoforaltherapeuticdrugs,normalizingcoexistencewiththecoronavirusafter2023.

Theriskscenarioontheotherhand,isnewwavesofmorevirulentvariantsbeforethedevelopmentanddisseminationoforaltherapeutics.Inparticular,theresurgenceofinfectioninChina,whichhasadoptedazeroCOVIDpolicy,isfearedtohaveagreaterimpactontheworldeconomyduetoasharpdeclineindemandandsupplychaindisruptions.

2.2.2Wideningdisparities

Thesecondsocialfactoristhewideningdisparities.Thedebateovertherelationshipbetweeninequalityandeconomicgrowthhaslongbeendiscussedandisnotsettled.

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Inrecentyears,however,asexemplifiedbytheIMF(2014)2,theprevailingviewhasbeenthat"Countrieswithsmallerdisparitiestendtohavehighereconomicgrowthratesandsustainedeconomicgrowth"(Fukasawa,2015)3.

HitachiResearchInstitutedoesnotforeseeanymajorchangesinincomeinequalitythrough2025.Thisisbecausemanydevelopedcountries,includingtheUnitedStates,

advocateinclusivegrowthintheirrecoveryfromtheCOVID19disasterandhaveadoptedpoliciesfocusingonredistribution(ofincome).InJapan,theKishidaadministrationhasemphasized"growthanddistribution,"andhasproposedashiftfromtheeconomicgrowthpathbasedonthetrickle-downtheoryadvancedbytheAbeadministration.

Ontheotherhand,thereisanargumentthatthedigitizationoftheeconomycausedbytheCOVID19disasterwillleadtoadeclineinemploymentandadigitaldivide,whichwillcontributetothewideningofeconomicdisparities.Theriskscenarioisafurtherincreaseinincomeinequalitythroughthedeclineofthemiddleclassdueto

increaseddigitizationandprolongedinflation.Thewideningdisparitiescouldraisecriticismofexistingpoliticalpartiesagainstthebackdropofrisingjobinsecurityandcouldleadtosocialunrestsuchasachangeofgovernment.

2.3Politicalfactors

2.3.1CompletedivisionbetweenRussiaandWesterneconomies

ThefirstpoliticalfactoristhecompletedivisionbetweenRussiaandWesterneconomies.Theinternationalcommunity,ledbytheUnitedStatesandEurope,

2Ostryetal(2014).,"Redistribution,Inequality,andGrowth,"IMFSTAFFISCUSSIONNOTE,February

2014

3Fukasawa(2015),"HowShouldWeThinkabouttheRelationshipbetweenInequalityandEconomicGrowth,"TheReference,February2015

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showedstrongsolidarityagainstRussia,andtookeffectivemeasuresinquicksuccession,suchasbanningRussianfinancialinstitutionsfromSWIFT,aninternationalpaymentsnetwork,andreducingdependenceonRussiancrudeoilandnaturalgas.ThewarbetweenRussiaandUkraineissendingapermanentshocktotheworldeconomy.

HitachiResearchInstituteassumesthatsanctionsagainstRussiawillcontinueand

becomenormalregardlessofwhetherthewarisprolongedornot.TheRussianandWesterneconomiesarecompletelydivided,andRussia'sgrainandresourcescannolongerbecountedon.EnergyshortagesinEuropewillcontinueforatleast2022to2023.

Theriskscenario,ontheotherhand,istheescalationofwar.Russia'suseofweaponsofmassdestructionandotherfactorscouldraisetheprofileofwarbetweenRussiaand

NATO,leadingtoconfusioninfinancialmarketsduetorapidriskaversion.

2.3.2Otherpoliticalfactors

Otherpoliticalfactorsupto2025includeeventssuchastheU.S.presidentialelectioninNovember2024andTaiwan'spresidentialelectioninthesameyear.

The2022U.S.midtermelectionsenvisageaRepublicansweepoftheHouseandsenate,buttheriskisthatDemocratswillretaintheirmajorityintheHouseofRepresentatives,andcongressionaltwistswillfurtherstallcongressionaloperationsandpolicymaking.ItisalsopossiblethatformerPresidentDonaldTrump,whoimplementedself-righteouspoliciesanddiplomacy,willcomebacktopowerin2024.

Taiwan'spresidentialelectionisalsodrawingattentionduetoitsrelationshipwithChina.ThebasescenariodoesnotenvisageChinatakinganymilitaryactionagainstTaiwanby2025.Ontheotherhand,theriskscenarioassumesthattheXiadministrationtakescontrolofTaiwan'sremoteislandsasapreludetothereunificationwithTaiwan,andthateconomicsanctionsbytheUnitedStatesandits

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allieswillbeimplemented.

3.Compoundrisksofconcern

BasedontheriskscontainedineachofthefactorsmentionedinChapter2,thefollowingfourscenariosareofconcernascompoundrisksfor2025.TherelationshipbetweenindividualrisksandcompoundrisksisshowninTable1.

3.1OverkillandstagflationoftheU.S.economy

ThefirstcompoundriskisthattheFRB'sexcessivemonetarytighteningwillberegulatoryoverkillfortheU.S.economy,furtherdeepeningglobalstagflationandsubsequentglobalrecession.

TheaccelerationofinterestratehikesintheUnitedStatestriggeredbyrisinginflationwillleadtoaplungeinstockpricesandotherassetprices,andtheU.S.economywillstall.Ontheotherhand,duetothedeterioratingsituationinUkraine,energypricescontinuetorise,andevenifinterestratesareraised,inflationwillnotresolveimmediately.TheRepublicanPartywillwintheU.S.midtermelectionsamidgrowingcriticismofthewideningincomeinequality,andtheUnitedStateswillnotbeabletoimplementaggressivefiscalpolicies.Aftertheendoftherapidratehikein2023,riskswillbecomemoreseriousthanexpectedandglobalstagflationwilldeepen.Thepointatwhichinflationwilleventuallysubsideduetoadeclineindemandisthesameasintheassumedscenario,butitwillbeassevereasorevenworsethanthataftertheglobalfinancialcrisis,andtheworldeconomy

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willsufferasimultaneousrecession.

3.2RapideconomicslowdowninChinaduetopoliticalfactors

ThesecondcompoundriskisasuddenslowdownoftheChineseeconomy.Twopoliticalrisksareassumed:thefailureofthezeroCOVIDpolicyandacontingencyinTaiwan.

Theformerisashort-termrisk.Chinawillfailtocontainthevirus,andinfectionswillspreadfurtherinmajorcities.However,theChinesegovernmentcannoteasilychangeitszeroCOVIDpolicyandwillcontinuetoimposesevererestraintmeasuressuchascitylockdowns,causingasharpslowdownineconomicactivity.Theriseininflationwillleadtosmallandmidsizecompaniesfailingtorepaytheirdebts,increasingthenumberofnonperformingloansheldbyfinancialinstitutions.

TherapidslowdownoftheChineseeconomywillspilloverintotheworldeconomy,includingJapanandEurope.Theproblemofnonperformingloansislikelytoarisearound2025.

IfaprogressivegovernmentcontinuesinTaiwan’s2024presidentialelection,theChinesegovernmentwillseektoconquerTaiwan'sremoteislandsasapreludetoreunification.Inresponse,theUnitedStatesanditsallieswillimposeeconomicsanctionsandChinawilltakeretaliatorymeasures.TheworldeconomywillslowsharplyastheChinesemarketbecomesmorefragmented.

3.3SupplychainriskinEurope

Thethirdcompoundriskissupply-chainriskinEuropewithitsepicenterinCentralandEasternEurope.

TheintensificationofthewarbetweenUkraineandRussiawillleadtoincreasedpoliticalandsocialunrestinneighboringCentralandEasternEuropeancountriesand

furthercurrencydepreciationinregionsthathavenotadoptedtheeuro.Tocopewiththedepreciationofthecurrency,theauthoritieswillraiseinterestratesfurther,

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buttheeffectwillbelimited,andtheregionwillfaceafinancialcrisisalongwithcapitaloutflow.InCentralandEasternEuropeancountriessuchasPoland,socialdisorderwillbespreadingduetotheacceptanceofrefugeesfromUkraine.

Asaresult,supplychainswillbedisruptedduetotheclosureofplantsinCentralandEasternEurope,andproductionwillbesuspendedmainlyintheGermanmanufacturingindustry,whichisheavilydependentontheregion.Germany'ssuddeneconomicslowdownwillspreadnotonlytoEuropebutalsotoChinaandothercountries.

3.4Japan'sreturntodeflationandlong-termstagnation

ThefourthcompoundriskisJapan'sreturntodeflationandlong-termstagnation.Inthesecondhalfof2022,whilethenegativeimpactoftheCOVID19pandemicwillbemitigated,JapanwillnotbeabletorecoveritsconsumptionaftertheCOVID19pandemicduetoimportinflationcausedbyhighresourceprices.Afterstagflation,

JapanwillfallintodeflationagainastheUnitedStatesandotheroverseaseconomiesstall.Underzerointerestrates,thefiscaldeficitwillwidenfurtherasmonetarypolicyishamstrungandforcedtorelyonfiscalpolicy.TheKishidaadministration's“virtuouscycleofgrowthanddistribution”willendunsuccessfully,wideningdisparitiesandshorteningthelifeoftheadministration.

4.Socialandindustrialstructuralreformsdevelopdespitethecrisis

Sofar,wehaveexaminedthebase