[2] Second, there has been a significant fall in the number of immigrant or foreign-born workers in the advanced economies, particularly among lower-wage occupations. [3] Third, preferences for work relative to non-work activities may have shifted during the pandemic. Recent US data show a persistent decline in desired hours worked especially among better-educated workers. [4] It remains to be seen whether these labour supply shifts are irreversible. Ultimately, so long as labour shortages continue, prices will edge higher compounding the pressure on central banks to hike further later this year. The second uncertainty is posed by China’s re-opening: a stronger-than-expected infrastructure-led rebound in China could pose an upward risk to global inflation. While we can anticipate an uptick in demand from China’s reopening, the extent to which this imparts a renewed impulse to global inflation is unclear. For now, China’s near-term developments appear unlikely to decisively reverse the global disinflation trend in 2023. The recovery of China’s consumer demand is expected to be led by domestically oriented consumer services rather than tradable goods. Unlike in advanced economies, China has a substantial supply of deployable labour suggesting that significant labour market tightening is unlikely. Producer prices in China are continuing to decline. The easing of pandemic-related supply chain disruptions will help moderate producer price pressures, imparting a mildly disinflationary impact on the global economy. However, a sharp rebound in economic activity in China on the back of robust infrastructure spending and an accelerated recovery of the property market could lead to higher global commodity prices.

Third, reduced technology sharing and collaboration will hamper the widespread adoption of best practices, thereby reducing efficiency and increasing costs. Fragmentation in the real economy will also have an impact on capital flows and financial markets. Geoeconomic fragmentation elevates financial market risk and disruption, as capital flows become more regionalised and less global. Consequently, this reduces market liquidity and returns and increases market volatility. The impact of disruptions in cross-border capital flows falls disproportionately on the less developed countries. In short, no country will emerge unscathed with rising geoeconomic fragmentation, with emerging market economies set to bear the brunt of reduced trade and capital mobility. In the last decade, emerging market financial assets benefitted from the rising tide of capital inflows that created a virtuous cycle of capital market reforms, deeper liquidity, and vibrant market development, which in turn drew in more capital inflows. The impact of a slowdown in capital inflows would be felt most acutely in those countries with the least developed capital markets and rely the most on foreign capital, putting them at risk of financial or balance of payments crises. Emerging markets that have already reached a more advanced stage of development, included in global indices, and run healthy external balances may be more resilient. LONG TERM: CLIMATE CHANGE  Perhaps the most significant financial risk for investors over the long term is climate change. This risk can materialise in two ways.