Harr flags global uncertainty, fragmentation, inflation

Danmarks Nationalbank Chief Economist Thomas Harr outlined a global economy grappling with persistent fundamental uncertainty.

He identified AI, climate change, the erosion of the rule-based world order, ongoing wars, and potential pandemics as core drivers.

This environment fosters geoeconomic fragmentation, marked by an acceleration of trade-restrictive measures now affecting about one-fifth of global imports.

Trade policy uncertainty has surged to exceptionally high levels, with recent tariffs indicating a deeper phase of fragmentation.

This has led to increased trade rerouting through Asian economies and a notable decline in US imports from China, particularly in advanced manufacturing.

EU trade with the US and China also shows shifts, with imports surging and exports weakening.

Higher inflation persists as a global trend, fueled by energy shocks causing broad-based rises in consumer energy prices.

Cost pressures are increasing early in the pricing chain, though core inflation diffusion measures do not yet show immediate pass-through effects.

Danish consumer prices are still projected to rise.

Harr highlighted that 2026 is not a repeat of 2022, citing less severe energy shocks, pre-existing inflation, stronger private consumption, and accommodative monetary policy in 2022 as key differences.

Weak private consumption is observed across countries, with lower consumption ratios and increased consumer pessimism, particularly in the euro area and Denmark.