Monday 20 Jan 2020 | 02:35 | SYDNEY
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Stephen Grenville's picture
People | experts Stephen Grenville
Nonresident Fellow
Lowy Institute
Stephen Grenville's picture
Areas of ExpertiseRegional economic integration; Australia's economic relations with East Asia; international financial flows and the global financial architecture; financial sector development in East Asia

Who are the real laggards in global growth?

For the past three months there has been a steady chant of pessimism about growth prospects in the emerging economies, with the IMF’s voice prominent in the wailing. As IMF Managing Director Christine Lagarde told the G20 meeting in September: ‘Just as some advanced economies have begun to

Hey growth pessimists, why the long faces?

Economics has long been seen as the dismal science. Current commentary provides evidence. Whether discussing the cyclical conjuncture or the prospects for longer-term sustainable growth, gloom prevails. Certainly, the mature economies have had a pathetically limp recovery from the 2008 financial

Blame China for the global financial crisis?

In the five years since Lehman Brothers declared bankruptcy, the scale of the financial sector debacle has become clear. The global financial crisis (GFC) can now be seen as the product of multiple policy and institutional failures embedded within misguided doctrine. Amazingly, with the full

How much slowing in emerging economies?

Financial markets are the gate-keepers on capital flows to emerging economies, but their views can be disruptively fickle. Earlier this year the 'search for yield' brought a flood of foreign capital to these countries, supported by effusive commentary from the international press and market

Trade priorities in the 2013 election

Shadow Foreign Minister Julie Bishop's outline of the Coalition's international policies emphasised the importance of trade in general and free trade agreements (FTAs) in particular. She singled out for special mention those countries which have gained advantage by signing bilateral treaties ahead

The dark art of economic forecasting

Since so much international economic discussion revolves around GDP forecasting, it's worth looking at the quirks and pitfalls of this black art. Yogi Berra famously said 'It's tough to make predictions, especially about the future'. This view has been confirmed by more rigorous analysis, both at

Who will lead the Fed?

Ben Bernanke's term as Chairman of the US Federal Reserve finishes in January next year, and President Obama has indicated that he will be replaced rather than reappointed. The past few years demonstrate that running a central bank has plenty of pitfalls, with the 2008 crisis identifying mistakes

Emerging economies: Why so gloomy?

Ever since the 2008 financial crisis left many advanced economies in disarray, global growth has been sustained only through the continued spectacular performance of the emerging countries, especially China. But a wave of gloom has now spread concerning their prospects and the knock-on implications

Indonesia's development formula II

Part 1 of this post here. The debate Joe Studwell has advanced in How Asia Works (see Sam Roggeveen's three-part interview here) is, in fact, not that novel. Studwell is not alone in advocating industrial policy: Justin Lin, former World Bank chief economist, makes the same argument in his recent

Indonesia's development formula

I share Sam Roggeveen's enthusiasm for the iconoclastic approach of Joe Studwell's How Asia Works (his previous book on Asian Godfathers was a great read too). I also share Studwell's scepticism about the 'magic of the market', his views on the IMF, and his admiration for the achievements of the

China: What about the workers?

While the worrywart commentators are focused on the slowing of China's growth (even though most forecasts still start with a '7', which doubles income in a single decade), they reinforce the drama by implying that China has run out of policy options to maintain growth. Sure, China may not be able

Global growth gloom: Let's calm down

The IMF has updated its forecasts for global growth. The Financial Times reports that the IMF has 'slashed its forecasts' and that 'the downgrades highlight the gathering clouds around the world economy'. The Wall Street Journal opens its reporting on the update like this: 'investor fears that the

China's incomplete financial evolution

The spike in China's short-term interest rates over the past month sent a shiver through world financial markets, in the same way that Fed Chairman Bernanke's statements on quantitative easing startled financial markets a month earlier. In both cases the market over-reacted, reflecting a

Infrastructure: The limits of PPPs

Infrastructure is a sturdy perennial on the G8 and G20 agendas. Invariably there is a plea for more public-private partnerships (PPPs). With the prospect of budget austerity as far ahead as the eye can see, the case for getting the private sector to pay for infrastructure seems compelling. If

Warming up to Indonesia

Most of us Indonesia groupies have long been nonplussed at how Australians are so luke-warm (and so ill-informed) about Indonesia, as confirmed by the latest Lowy poll. I agree with Dave McRae that we need more person-to-person links. But there are already quite a few. What about all those

Financial reform: A job half-done

Nearly five years after the onset of the financial crisis, we might expect widespread agreement on what went wrong and how to fix it. But there is still a lot to be done, with some new thinking required. In the UK, the two biggest banks are still in government administration, the prudential

Do financial markets understand QE?

Fed Chairman Ben Bernanke sent a shiver through financial markets worldwide late last month when he said that if the Fed saw 'real and sustainable improvement in the labour market' it could 'take a step down' in the volume of its quantitative easing (QE), possibly 'in the next few meetings'. Bond

Is China already a responsible economic stakeholder?

The meeting between Presidents Obama and Xi in Palm Springs over the weekend presented another opportunity to berate China for its international economic imbalances, but the two presidents sensibly found more fruitful things to talk about. It's getting harder to find fault in China's interaction

Insolvency: When countries go broke

The debt mess in the European periphery (Ireland, Greece, Spain, Cyprus and Italy) has been a reminder of how hard it is to sort out sovereign insolvency. Much damage is done to the international economy when there are no clear rules for sovereign bankruptcy, analogous to domestic bankruptcy

Asia Pacific trade: Choosing sides

Hugh White makes a compelling case that we may have to choose between America and China one day, with that moment of choice decided by the two great powers. Here is one small example where we could do something which might – just might – make it less likely that this moment of choice will

Debt paranoia

Global bond markets seem determined to fight the last war. Having ignored the debt build-up that brought down the US financial system in 2008 and crippled the European periphery in 2010, debt phobia is now imposing excessive austerity on key advanced countries which should be growing faster.

China doomsayers run out of arguments

Ever since China slowed from unsustainable 10%-plus growth figures in the pre-2008 decade, there has been a barrage of voices foreseeing a painful slump. Some even doubt that China will overtake American GDP.  Meanwhile, official figures show China growing at more than 7%, which is enough to

The deadly politics of fuel subsidies

When G20 leaders met in Pittsburgh in 2009, they committed to 'rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption'. Subsequent meetings have repeated this commitment. It's a big issue. One estimate puts the worldwide subsidies at 2.5

Is there a middle-income trap?

With Europe stagnating, America in a limp recovery and Japan still mired in its lost decades, world growth has been sustained over the past two years by the performance of the emerging countries, which accounted for half of world growth. This has occurred despite confident predictions that these

Fiscal policy: A rock and a hard place

With Spanish unemployment topping 27%, it's hard to argue that the recovery is on track. It's not just Spain: the IMF estimates, in its latest World Economic Outlook, that euro-area GDP declined nearly 1% during 2012 and this loss will not be recovered this year. The Fund forecasts growth of just

Why economists' errors matter

Economics blogs are all atwitter with discussion of Reinhart and Rogoff's (R&R) Excel error: it turns out that a 90% debt-to-GDP ratio is not a critical threshold for dramatically slower growth after all. All this excitement may be a storm in a teacup but there are wider lessons which go beyond

Commodity trade: Where's the scrutiny?

The Interpreter has commented on the relaxed attitude of Australian authorities to the possibility that world commodity prices might be manipulated to our disadvantage.  The Chinese seem more interested in the issue. The Glencore-Xstrata merger has finally been agreed by Chinese authorities 

Monetary policy: All in the mind (nearly)

The initial response to Japan's new monetary policy has been dramatic. Even before any action has been taken, the exchange rate has depreciated by 20% and equity prices are up 30%. People are talking as if the lost decades are over. Others, however, are arguing that Quantitative Easing (QE) shouldn

The IMF and the Cyprus debacle

When Prime Minister Gillard met IMF Managing Director Lagarde at the Bo'ao Conference last week, her opening gambit was to praise the IMF for sorting out the Cyprus problem. This is, to say the least, puzzling. Cyprus was an unmitigated mess which leaves a lasting legacy on the frail European

What's wrong with the NZ economy?

New Zealand pioneered economic reform. Now, nearly three decades later, some Kiwis are wondering why there has not been a bigger pay-off. New Zealand real income was above the OECD average in the 1960s, fell to less than 60% of the OECD average by 1990 and since then, despite sustained vigorous

When countries go broke

Every country has detailed procedures to govern private sector bankruptcy. These allow the residual assets of the insolvent company to be divided equitably between creditors. The insolvent party can begin again, reputation damaged but at least able to move forward with the slate wiped clean. But

Who is to blame for austerity?

The concerted global fiscal stimulus of 2009 is an example of excellent policy-making, the more outstanding because subsequent policies have been ineffectual in addressing the weak recovery in advanced economies. Why did success morph so quickly into the fiscal policy lethargy of the past three

Emerging countries go with capital flow

It goes without saying that the 2008 financial crisis altered the way capital flows between countries. Cross-border capital flows fell by 60% between 2007 and 2012. We now have enough perspective to evaluate how this might affect future flows to emerging economies. Risk perceptions altered

Free markets: Purity is impotence

Australia has a pretty consistent record of playing by the 'free market' rules in its international economic relations, with low tariffs, restrained use of anti-dumping restrictions, acceptance of international intellectual property norms and openness to international capital flows. By and large,

Can Abenomics fix Japan's economy?

Just about everyone agrees that the Japanese economy has underperformed for over two decades. The astounding rise of China in the same period deepens the hurt. Prime Minister Abe has a three-pronged response: monetary expansion, fiscal stimulus and structural reform.  Financial markets showed their

Currency wars and lost opportunities

In 2010, Brazil's finance minister complained that his country was the victim of a 'currency war'. Following the 2008 crisis, the advanced countries set their interest rates close to zero and implemented quantitative easing. These policies caused their exchange rates to depreciate and encouraged

Finance sector ills dormant, not cured

In America, the momentum for reform resulting from the 2008 financial crisis has dissipated, with Wall Street's continuing resistance weakening the initial political vigour. Some progress has been made. In due course, banks will have to hold more capital and meet liquidity requirements. US

US budget woes: It's all politics

US fiscal policy slid over the fiscal cliff last month without serious damage and the next debt ceiling hurdle has been pushed back a few months. But the longer-term issues remain unaddressed. This failure to articulate a credible and sustainable budget strategy saps confidence and holds back a

Is central bank independence at risk?

Two decades ago, monetary policy seemed to have reached the 'end of history': it had evolved an optimal format from which no further refinement seemed necessary. The two key elements were a focus on low inflation and central bank independence as the means of separating monetary policy from political

Floods: Jakarta's infrastructure deficit

Last week's floods in Jakarta illustrate that the private sector can provide valuable public goods, available free of charge to just about anyone. If you wanted to see how hard it was to get around the city, a free web link ( gave access to real-time cameras at various strategic

Why economic policy fails

It was not pre-ordained that the economies of Europe, the US, and the UK would perform as poorly as it they have over the past two years. There were better policy options available which would have lowered unemployment (currently close to 8% in the US and the UK, and nearly 12% in Europe), fostered