Table of contents

Foreword x

Abbreviations xii

Explanatory notes xiii

Chapter I

Resilience and its limits 1

Policy takeaways 3

A. Artificial intelligence, the energy shock and the limits of resilience 4

B. Global economic outlook: Growth in a bifurcated world 6

1. Waning private consumption amid the energy shock 12

a) The energy shock: Transmission and absorption 14

2. Artificial intelligence boom, bubble and concentration 21

3. Fiscal reprioritization 27

a) New fiscal priorities 28

b) Shrinking development assistance 32

C. International markets 37

1. Trade: Strong yet deeply unbalanced 37

a) Trade in goods: Price increases conceal weaker volume 38

b) Trade in services: Resilient but moderating 49

2. Capital flows: High volatility amid tightening global financial conditions 50

References 56

Chapter II

Selective fragmentation: The new geography of trade 59

Policy takeaways 61

A. Introduction 62

B. Trade policy fragmentation: Causes and dynamics 63

1. Political economy and geoeconomic changes 66

a) Political dynamics 66

b) The erosion of the political consensus supporting globalization 66

c) Geoeconomic competition and strategic sectors 66

2. Domestic incentives for industrial policy intervention 66

3. Global value chains: Rebalancing efficiency and risk 67

4. Use of trade policy for non-trade objectives 67

5. Weakening multilateralism and reduced constraints on intervention 68

C. Trade policy instruments behind fragmentation 68

1. Market access and compliance instruments 72

a) Import restrictions: Tariffs and trade remedies 72

b) Regulatory requirements 74

c) Rules of origin and preferential access requirements 74

2. Government support 75

a) Subsidies and industrial support 75

b) Local content requirements and domestic preference rules 75

3. Security, technology and strategic control instruments 76

4. Institutional and regulatory fragmentation beyond WTO 76

5. Socioenvironmental conditionality 77

D. Changing trade patterns and geoeconomic shifts 79

1. Trade resilience amid volatility and unequal outcomes 79

2. Trade patterns, geographic distance and geoeconomic compatibility 80

3. Technological content of trade and strategic products 84

4. Regional trade agreements 86

E. Policy implications: Managing fragmentation while

preserving development opportunities 88

References 93

Chapter III

Development in the age of geoeconomics 95

Policy takeaways 97

A. Introduction 98

Development frontiers: An analogy 104

B. Economic policy, security and strategic sectors 104

1. The rise of strategic economic sectors 106

2. Industrial policy and geoeconomics 112

Instruments of industrial policy 113

C. Integration strategies in the current geoeconomic context 120

1. Democratic Republic of the Congo: The dilemmas of a resource advantage 120

2. Mexico: Balancing cross-border manufacturing networks 124

3. Malaysia: A structural ceiling on advanced industrialization? 128

D. Sectoral multi-alignment, regionalism and rising

economies from the global South 131

1. Turkiye: Integration and sectoral multi-alignment 131

2. Rising economies in the global South: anchoring regionalism amid geoeconomics 135

E. Conclusion and policy lessons 140

References 141

Annex 1 145

Annex 2 146

Annex 3 147