Sovereign Growth Models at a Crossroads: Navigating a New Global Economic Landscape
- CEE Staff
- Nov 18, 2025
- 4 min read
Executive Summary
For decades, a set of archetypal national growth models (from Germany’s export-led manufacturing to the commodity-driven expansion of nations like Brazil and Saudi Arabia) provided a conventional playbook for economic development. However, a confluence of structural shifts in the global economy, including geopolitical realignment, supply chain reconfiguration, and an accelerated energy transition, is placing these once-reliable models under unprecedented strain. This policy brief examines the systemic risks facing these established strategies, analyzes the vulnerabilities in both advanced and emerging economies, and proposes a framework for building more resilient and diversified growth models for the future.
Our analysis reveals that the core assumptions underpinning these models are eroding. Export-oriented economies face a world of rising protectionism and slowing trade growth. Commodity-dependent nations remain exposed to price volatility and the long-term challenge of decarbonization. Service-based and single-asset economies are confronting the limits of non-inclusive growth. The policy complacency that characterized the era of hyper-globalization is no longer tenable. We conclude with a set of actionable recommendations for policymakers to foster economic diversification, enhance human capital, and strengthen domestic institutions to navigate this new and uncertain era.
The Decay of Advanced Economy Models
The post-war economic miracles of several advanced economies provided a template for global development, but their foundations are now showing significant cracks. Some examples:
Germany’s Export-Led Engine Stalls: Germany’s industrial model, long celebrated for its high-quality manufacturing and export prowess, is facing a structural crisis. The model’s dependence on cheap Russian energy and unrestricted access to the Chinese market has transformed from a strength into a critical vulnerability. The termination of Russian gas supplies has permanently elevated energy costs, threatening the competitiveness of core industries. Furthermore, as China develops its own advanced manufacturing capabilities and contends with domestic overcapacity, its demand for German capital goods is waning. The German economy contracted in late 2024, with exports of goods and services still accounting for a significant 42.1% of GDP, highlighting its exposure to global headwinds . A period of creeping deindustrialization is no longer a remote risk but an emerging reality.
The United Kingdom’s Productivity Stagnation: The UK’s pivot from manufacturing to a services- and finance-based economy has also reached its limits. For over a decade, the country has grappled with a persistent “productivity puzzle,” with annual growth averaging a mere 0.46% since 2008. The economic frictions introduced by Brexit have exacerbated this trend. Recent studies estimate that by 2025, Brexit had reduced the UK’s GDP by as much as 6-8% and investment by 12-18% compared to a scenario where it had remained in the EU . Without a concerted industrial strategy to boost investment and human capital, the UK risks a prolonged period of economic stagnation.
Vulnerabilities in Emerging Market Strategies
Emerging economies that adopted simplified versions of these models are discovering their inherent fragility in a more complex global environment.
Single-Asset and Service-Based Economies: The case of Panama illustrates the limitations of a growth model centered on a single asset. While the Panama Canal has generated significant revenue and driven headline GDP growth, projected at a healthy 3.5% , it has also fostered deep economic dualism. Wealth is concentrated in the Canal corridor, while much of the country lags, fueling inequality and social unrest. Similarly, nations overly reliant on a single service sector, such as tourism, face extreme vulnerability to external shocks, as the COVID-19 pandemic demonstrated.
The Persistent Commodity Curse: For many nations in Latin America and Africa, dependence on commodity exports remains a primary obstacle to sustainable development. Nigeria’s economic trajectory, for instance, remains tied to the volatile price of oil, with projected GDP growth of 3.3% for 2024 failing to meet the country’s immense development needs . Likewise, the extractive-based economies of Chile (copper) and Brazil (iron ore, soy) are subject to global commodity cycles that can create boom-bust dynamics, hindering long-term planning and investment in diversification. Even Saudi Arabia, despite its ambitious Vision 2030 and a 4.2% expansion in its non-oil GDP in 2024, remains fundamentally dependent on oil revenues to fund its economic transition.
Manufacturing Models Under Pressure: The export-oriented manufacturing model, famously successful in Asia, is also facing new challenges. Bangladesh, a leader in garment manufacturing, has seen its economic stability threatened by domestic political turmoil and its vulnerability to fluctuating global demand. China’s own supply-side model is contending with significant industrial overcapacity and weak domestic consumption, leading to deflationary pressures that risk being exported globally.
Policy Recommendations for a New Era
Navigating this landscape requires a decisive shift away from path dependency and toward building more resilient, diversified, and inclusive economies. Policymakers should prioritize the following actions:
Implement Proactive Industrial and Diversification Strategies: Governments must move beyond simply letting market forces dictate economic structure. This involves identifying and nurturing high-potential new sectors through targeted investments in R&D, infrastructure, and skills. For commodity-dependent nations, this means actively managing resource revenues to fund diversification initiatives, including in downstream processing and non-related sectors like technology and renewable energy.
Invest in Human Capital and Social Safety Nets: A skilled and adaptable workforce is the most critical asset in a changing economy. This requires sustained investment in education, vocational training, and lifelong learning systems. Robust social safety nets are also essential to support workers during economic transitions, mitigating the social and political fallout from the decline of legacy industries.
Strengthen Domestic Demand and Regional Integration: Over-reliance on extra-regional exports is a key vulnerability. Policymakers should focus on strengthening the domestic market by boosting household income and consumption. Simultaneously, deepening regional trade and economic integration can create larger, more stable markets that are less susceptible to global volatility.
Foster a Conducive Environment for Private Investment: While government must set the strategic direction, private sector investment is the engine of diversification. This requires creating a stable macroeconomic environment, ensuring regulatory predictability, upholding the rule of law, and reducing the bureaucratic barriers that stifle entrepreneurship and innovation.
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