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29 May 2023

International Economy

The recent G7 summit focused on intensified geopolitical conflicts (Current Issue No.3413)


        Geopolitical issues dominated discussions at the Group of Seven (G7) summit held from May 19 to 21, 2023, in Hiroshima, Japan. Key outcomes included a signal of ongoing support for Ukraine, imposition of additional sanctions against Russia, the stance to limit the role of China in all aspects, and new alliances with developing economies in the Global South. KResearch holds the view towards the G7 summit that the business sector must be prepared to tackle uncertainties for at least 3-5 years as follows:

  1. Geopolitical issues remain key triggers of global economic fragility in the medium and long term. Due to the prolonged Russia-Ukraine war, the G7 has imposed new sanctions on Russia, while putting more pressure on China to cut Russia’s economic aid. In an additional effort, the G7 has forged economic ties to enhance its presence in Global South countries where China has established relations. These factors could exacerbate the US-China conflict. An economic divide between the G7 and China has emerged. China reduced its trade ties with the G7 to 33.3 percent of the country's total trade value in 2022 (compared to 39.9 percent in 2017), while the G7 has yet to make a significant change.
  2. Global supply chain decoupling has become more apparent as the G7 continues to pressure China. The summit did not indicate whether China is the main target but reflected its attempt to limit China's role in the global economy and technology. Amid pressure from the G7 through export controls of technology products to China, investors in China and G7 nations have increasingly shifted their production bases away from China. During the transitional period, Thailand may benefit from investment in reconfiguring supply chains, especially assembly of electronic components, which is one of Thailand's strengths. In the medium and long term, new investment in emerging technologies will depend on the decisions of investors who see opportunities in the potential countries.
  3. Geopolitical conflicts show signs of a movement to rely on local currencies to avoid US Dollar volatility, especially through promoting international trade payment in Chinese Yuan. Going forward, the Chinese Yuan will be increasingly used for payments of goods and services, both in Thailand and other Asian countries, if it becomes a local currency for trade with China. In 2022, trade volume (export and import) between Thailand and China – its number-one trading partner – was more than USD 105 billion, accounting for 18 percent of total trade between Thailand and foreign countries. Meanwhile, over 80 percent of trade payments between Thailand and China in 2022 remained in US Dollars.
  4. Developing economies in the Global South are becoming more prominent worldwide. Thai businesses may tap opportunities across new emerging markets. These countries are large markets with potential growth of economies over the long term. China has spent more than a decade strengthening economic ties under the Belt and Road Initiative (BRI). The G7 has also enhanced its economic relations in a similar manner. Even though many countries in the Global South have grappled with fragile economies and high inflation, they still rely on goods and services from other countries to support economic development.

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International Economy