The fact that the global economy is able to grow despite high interest rates, last year’s bank shocks and slowing but sticky inflation, clashes with concerns over the geopolitical situation and its unpredictable impact. So, who’s wrong? Are we getting used to living with great uncertainty?

The global economy and markets navigate through cheerful optimism. In macroeconomics, there is a growing feeling that we are heading towards a “remake” of Superman, the economic version (or the so-called “Supermacro”). The macro landscape has undoubtedly provided cause for enthusiasm. Should a soft landing come to fruition, it will be the most successful in global economic history, i.e., where central banks manage to slow inflation without significantly affecting (or should that be “drag towards recession”?) economies.

Let’s not forget that inflation skyrocketed in 2021; first, on the back of global value chain bottlenecks and disruptions due to the pandemic, and second, in 2022, because of rises in food and energy prices after Russia invaded Ukraine. Against this backdrop, central banks the world over raised interest rates by an average 550 basis points in what was the greatest global monetary tightening in modern history. In fact, 8 out of 10 central banks increased the price of money between 2022 and 2023, pointing towards an abrupt economic downturn that actually never materialized.

Was there an economic slowdown? Yes. But it was much tamer than expected. This was partly because of strong job markets with stable unemployment rates on the back of a smaller labour supply due to demographic and other reasons. And because of fiscal policies that prevented families and businesses from bearing the full brunt of shocks.

The overriding feeling today among investors and in markets is that this macro is “invincible”. It weathered monetary tightening and a sharp fall in income due to inflation, and employment remains at an all-time high in many countries, which are close to full employment. What is more, the collapse of Silicon Vally Bank and other banks that brought financial turbulence in March 2023 turned out to be an isolated case.

On top of that, the frenzy that the spread of artificial intelligence is creating in the markets only adds this “Supermacro”, with promises of multiplying productivity (and profitability), not to mention the so-called “Magnificent Seven” stocks (Nvidia and others). In the past six months, shares in the US and Europe rose by around 20%, driven by technology.

But it is not all sunshine and rainbows. This optimism clashes with the concerns of geopolitics experts. Some speak of a world embroiled in two “hot” wars (Ukraine-Russia and the Middle East) and an emergent cold war (United States-China), all of which have consequences that are difficult to predict. Geopolitical risk rates are still 50% higher than before the war in Ukraine. Meanwhile, the price of gold, which often provides a safe haven amid uncertainty, has risen 15% since the beginning of the year (it usually falls when rates are high). It is as if the world entered into binary logic, where the system only supports results of “zero” or “one”. Or all or nothing.

So, the question is obvious: Who’s wrong? Be wary of anyone who tells you they know the answer. As with any tail risk, “measuring” risks like geopolitics has never been easy. Are markets underestimating geopolitical risk? Are governments magnifying the potential impact of conflict? Or, as some analysts suggest, have we learned to live with more uncertainty in this interconnected and hyper-globalized world? Like everything, only time will tell.