The Ukraine war has added to the forces reshaping the global economic system into two US-led and China-led economic spheres. While the economic diversity of the US-bloc should help it to adapt relatively easily, the potential economic hit to the China-bloc will be bigger. With many countries also facing big demographic challenges, global growth is likely to settle at a lower rate than its pre-pandemic trend. The current period of very high inflation will prove temporary. And interest rates are likely to settle back at low levels once inflation has fallen, given that equilibrium real rates are likely still to be very low.
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