The world is slightly less connected this year than in 2018 but globalisation is generally holding up under pressure, according to the latest DHL Global Connectedness Indix which reviews international flows of capital, trade, information and people.
The new report, conducted by the NYU Stern School of Business, shows that shrinking international capital flows caused global connectedness to dip slightly in 2018. However, despite strong headwinds in global geopolitics and trade, the GCI stayed close to its record high of 2017.
Overall, the world remains more connected than at almost any other point in history, with no signs of a broad reversal of globalisation so far, DHL emphasised.
“International exchange empowers people and businesses around the world to collaborate and seize new opportunities,” commented John Pearson, CEO of DHL Express. “While current geopolitical tensions could seriously disrupt global connectedness, this 2019 update finds that most international flows have remained surprisingly resilient so far.
“Ultimately, what we’re seeing today is the evolution of globalisation, not its decline. Decision-makers need to be careful to not overreact to strong rhetoric or headlines,” he urged.
“Our analysis does not confirm a robust regionalization trend. Instead, we see that the average distance across which countries trade has held steady since 2012,” explained Steven A. Altman, Senior Research Scholar at the NYU Stern School of Business and lead author of the DHL Global Connectedness Index. “While fraying relations between major economies could lead to a fracturing along regional lines, such a shift has not yet conclusively taken place.”
The GCI update showed that trade flows continued to intensify through the early stages of the U.S.-China trade war in 2018 but this strength did not extend into 2019. In the first half of this year, the share of global output traded across national borders fell. While trade volume growth is likely to remain positive this year, it is not expected to keep pace with GDP growth. Nonetheless, current forecasts suggest that trade intensity is on track for only a modest decline through 2020.
Among the four different parameters for measuring global ‘connectedness’, capital was the only pillar of the index that declined in 2018. In fact, the pullback in global connectedness was entirely driven by shrinking international capital flows, specifically foreign direct investment (FDI) and portfolio equity investment.
Meanwhile, the globalisation of information flows continues to progress, but available measures point to a possible slowdown. Global people flows also continue to advance, primarily through travel and tourism along with international migration, the Index showed.
Looking ahead, all these four flows are currently running up against powerful headwinds as rising barriers and uncertainty about future openness start to carry significant costs, DHL pointed out.
At the same time, a survey on globalisation perceptions reveals that many people do not realize how limited global connectedness actually is. While the world is more connected than at almost any previous point in history, most business still takes place within rather than across national borders.
The report highlights how such exaggerated perceptions of globalisation can lead to distorted decision-making in business and an underestimation of the significant potential available from further increases in global connectedness.
This year’s update of the DHL Global Connectedness Index was calculated based on more than 3.5 million data points on country-to-country-flows. It provides full coverage from 2001 to 2018, along with partial analysis of the first half of 2019. The report also features a deep dive into the U.S.-China trading relationship, tracing the sharp decline in U.S.-China trade, as well as an examination of recent claims that globalisation is giving way to regionalisation.
The next full DHL Global Connectedness Index will also include country rankings and will be released in 2020, followed by another compact update in 2021. The DHL Global Connectedness Index report and additional background information can be downloaded at www.logistics.dhl/gci.
