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Home Finance Are we moving from a multipolar to a bipolar world order?

Are we moving from a multipolar to a bipolar world order?

by Staff GBAF Publications Ltd

By Andrew Lane’s, CEO, Acuity Trading

The end of the 20th Century and start of the 21st enjoyed a multipolar world. This began with the disintegration of the Soviet Union, a longstanding philosophical and economic powerhouse that counterbalanced the might of post-war United States. It wasn’t just the tumbling of the USSR that did it. The formation and growth of the European Union and the rapidly growing and modernising Chinese economy played a key role.

Then came 2020. The EU hit a rough patch with Brussels facing the fallout from Brexit, the Russian invasion of Ukraine, the aftermath of the covid-19 pandemic, record high inflation coming in from the US, and resurgent debt levels. For many, a European recession is just around the corner, which calls into question its influence on the shaping of the post-pandemic world order. If the EU loses ground, we stand to reacquaint ourselves with a world influenced by two economic superpowers – this time the US and China.

Where is the EU Headed?

The worry heading into winter for the EU was whether their gas supply would be able to meet peak demand, following Russia more than halving gas deliveries. Due to an unexpectedly mild winter and supplies from other countries, the EU was able to increase gas inventories by a record level in 2022. However, the energy shortage concerns have not completely vanished, as an escalation in hostilities with Russia or a surge in demand from a recovering China or other Asian economies could once again put the EU in a precarious position.

Unlike the US, interest rates in the EU are still relatively low. And there are billions in fiscal stimuli planned for 2023. The ECB has demonstrated a less hawkish stance than the Fed and is likely to wait for more economic activity data before continuing rate hikes. The Next Generation EU recovery plan is expected to ramp up significantly and members have already announced an equivalent of 5% of GDP in business and household support. The EURUSD, which plunged to parity earlier in 2022, reached its highest since April due to a strengthening European economy and the Fed easing its pace of rate hikes after the CPI print came in-line with expectations. Against this backdrop, investor sentiment for the EURUSD remains positive, as can be seen on Acuity’s AssetIQ widget.