The prospect of the global economy splitting into rival US and China camps is growing more likely, but Europe can help prevent this. Only an enlarged European community that includes Britain and breaks with US foreign policy can provide the needed counterbalancing force.
Divisive talk to encourage the creation of rival power blocs is not welcome when the world is facing global challenges that require multilateral solutions. Besides, the US is in no place to gloat – its investments in infrastructure and energy will take time to bear fruit, and its robust consumer spending won’t last.
The world’s leaders had so many topics demanding their attention at recent summits that the parlous state of the global economy was overshadowed. Summit attendees could be forgiven for keeping quiet given the likelihood of continued monetary tightening and a 2023 of contraction and recession.
After decades of urging private companies and individual governments to ‘do their part’ to tackle climate change, it’s clear the piecemeal approach isn’t working. Global cooperation requires multilateral institutions that are professionally and financially equipped to deal with it.
As Washington takes steps to reroute supply chains and strengthen strategic partnerships, China is systematically doing the same thing. In addition to pouring funds into home-grown tech, China is taking pains to integrate economic and security frameworks across Asia – with the support of Russia.
Rather than burning reserves to defend their currencies, countries should be conserving resources, given the looming debt and financial system crises.
Calls are growing for MDBs to expand their financing and play a bigger role in funding global challenges, from climate change to infrastructure renewal.
The belief that markets will recover as soon as inflation is curbed and interest rates have peaked is sheer ignorance. Experts warn that a systemic crisis is looming, affecting everything from banks and insurers to the housing and cryptocurrency markets.
The International Monetary Fund has warned of the financial stability risk posed by mutual funds, and other rising threats to financial systems. Before a bear market causes pain to myriad investors, the IMF’s ruling body should coordinate policies to stabilise the international monetary system.
Despite the prospect of protracted fiscal and monetary austerity, defence budgets around the world are ballooning. This is absurd when the world should be focusing on preventing pandemics, surviving climate change and eradicating poverty.
With interest rates rising, markets are waking up to what central banks already know: that inflation isn’t coming down and there won’t be a swift return to easy money. This policy unravelling is going to be painful, but may be necessary to purge the worst excesses of the past decade.
The Plaza Accord, signed in New York in 1985, did its job of hobbling Japanese competitiveness and forcing a “hollowing out” of the country’s economy. While the US has been unable to use a Plaza-like weapon against China, it now seeks to protect “economic security” by intervening in supply chains.
The world’s economic course has been poorly piloted in recent years, whether by Trump or Biden, as the US seeks to decouple from the Chinese economy. If the world is to prevent an economic crash, Asian nations and others must demand that the major powers change direction.
Trillions of dollars of multi-year investments are needed to save humanity from the most devastating effects of climate change. Even companies with social aims won’t risk spending that much on projects that will take years to pay dividends, if they ever do
Contrary to the hopes of policymakers and pundits, the global surge in inflation could be about to get worse instead of returning to normal. Countries that are ‘running their economies hot’ to maintain output and employment are instead fuelling a potential economic disaster.
The roots of the crisis go deeper than the financial shocks produced by Covid-19, the Ukraine war, inflation and rising interest rates. Advanced economies, whose banks are significantly exposed to emerging markets, cannot shrug off the impending distress.
Set against the estimated multi-trillion-dollar cost of dealing with global warming, Washington’s US$430 billion in a recently passed bill is hardly overwhelming. Furthermore, the prospects for global climate action do not look bright when the world’s top two carbon emitters, the US and China, can’t cooperate.
The vast majority of market funds come from institutional investors and fund managers dealing with other people’s money. Instead of driving boom and bust cycles, institutional investors should focus on basic and critical industries and improve capital market functioning.
The rapidly deteriorating state of the global economy suggests that a hard landing in the form of a recession or crash is all but certain. China and other emerging economies might have to carry the load of sustaining growth, but government budgets are stretched fighting the pandemic and inflation.
Don’t be distracted by the siren voices of market analysts reassuring that all is well with the global economy. Rather, listen to the likes of the IMF, World Bank and Asian Development Bank, whose top officials know what’s really going on.
Markets have done a bad job of channelling investment into needed areas, especially climate change. Specialised public climate banks, launched from scratch or spun off from development banks, could change all that – and attract the trillions of dollars exiting stocks.
The World Economic Forum is not advocating a return to socialist planning or rejection of market forces but upgrading public institutions to better work with the private sector to tackle serious socioeconomic challenges. This could help achieve synthesis between ‘market’ and state-controlled economies.
With big wins for a few and not much for the rest, stock markets are attracting massive funds from the economy but meeting none of its real needs. These range from SME support and repairing supply chains, to climate mitigation and infrastructure building.
Unlike with the last global financial crisis, the world is split into ideological blocs, the economy battered by a pandemic, and the threats broad-based. Someone needs to be the adult in the room and convene a special summit to persuade world leaders to cooperate on an economic rescue.
World leaders are being distracted by ‘national security’ issues when the graver threat is a deep and protracted global recession as inflation, looming debt and financial system crises threaten starvation and unrest.
Caught in the bruising US-China contest for influence in the region and other challenges, Asia must find better ways to resolve conflict and promote economic development. With its strong and peaceful growth, unassuming Asean may provide some answers.
While investors flock to the tech sector, the persistent underinvestment in the real economy, such as commodities-related infrastructure, is now pushing up prices. At the same time, the factors driving the bull market – robust growth, rising corporate profits and buoyant financial liquidity – are no longer in play.
The longest market boom in history saw the rise of all-powerful tech billionaires but did virtually nothing to serve socio-economic needs or mitigate the climate crisis. Now, with the world on the brink of an economic slowdown, a new generation of investors want less speculation and more sustainability.
The latest Western attempt to counter Chinese geoeconomic strategy is nebulous to the point of meaninglessness and has little hope of success. Until the US and its allies accept China as an equal, any attempts at ‘engagement’ will only come through a lens of conflict.
The mountain of global debt has grown to record size in the past decade but has gone largely unnoticed. Global financial institutions are now sounding the alarm, but governments and central banks are in no mood to listen.