Wednesday 20 Sep 2017 | 10:03 | SYDNEY
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Global Economy

Overview

Measured in US dollars, annual global gross domestic product is now somewhere over $72 trillion.  This figure incorporates all of the output in terms of goods and services within states, and also between states.  The global trading system represents around US$22 trillion of economic activity. Outside of the ‘real economy’, global financial asset markets are now worth well over US$600 trillion.   For perspective, Australia’s gross domestic product is worth around US$1.5 trillion.

What the Lowy Institute does

The ebbs and flows of global economic conditions, trade and capital flows, thus have substantial implications for the Australian economy, and Australia’s major regional trading partners. Understanding the broad trends, and identifying emerging challenges and opportunities within the global economy, is central to the work of the International Economy Program at the Lowy Institute for International Policy.

The highly integrated nature of the modern global economy became especially evident during the 2008 global financial crisis. What began as a localised problem within the residential asset-backed securities market in the United States, eventually brought down major financial firms across the Western world, and ultimately pushed the United States and Europe into a deep and prolonged recession. Although global economic growth has recovered somewhat since 2008, it is still much lower than pre-2008 trends, and the hangover from the crisis has manifested itself in the form of high unemployment levels throughout much of the developed and developing world, as well as an increasing level of inequality both within and between countries.

The International Economy Program regularly produces analysis on the major components of the world economy, principally in the areas of trade, finance, macroeconomic policy, and global economic governance.  The G20 Studies Centre, established at the end of 2012, places a particular focus on the role of the G20 as the primary global economic governance response to the global financial crisis.

Understanding the economic rise of Asia, and particularly of the growing middle class within Asia, is also crucial to the broader work of the Lowy Institute. Political economy analysis on major players in the region, chiefly China, India and Indonesia, features heavily in the work of the East Asia Program and the International Security Program.  

Using economic diplomacy to reduce financial risks in Asia

If Australia’s economic future lies in Asia, then managing the risk of financial crises in the region should be a top concern. Especially as any crisis could also have significant geopolitical consequences. In an analysis for the Lowy Institute, Barry Sterland looks at what Australia can do

The Asian Development Bank at 50: A spent force?

In May, the Asian Development Bank celebrated its 50th anniversary with a big bash in Yokohama. Senior ADB figures repeatedly pointed to the record crowd of more than 6000 attendees as evidence of the meeting's success and the ADB's enduring relevance. Not all of the 6000 were convinced. If there

Staying competitive in a global economy

This is the second in a three-part series on the future of world trade from a global (part 1), Asia Pacific (part 2) and Australian (part 3) perspective. The toughest message free marketeers have to get across is that encouraging others to open markets is not as important ensuring our economy is

Modi banking on jobs from Make in India

Make in India. It’s one of Narendra Modi’s signature policies - trumpeted by the prime minister to both domestic and foreign audiences, and exhaustively promoted by his government with savvy marketing campaigns. Its chief symbol - a stalking lion comprised of cogs and wheels - has become

A new proposal to normalise US monetary policy

If financial markets were expecting clear guidance on future US monetary policy moves from the annual central bank get-together at Jackson Hole in Wyoming last month, they would have been disappointed. Fed Chair Janet Yellen confined her speech to setting out how much progress has been made in

Is an Asia Pacific free market feasible?

This is the second in a three-part series on the future of world trade from a global (part 1), Asia Pacific (part 2) and Australian (part 3) perspective. The Trump Administration's dramatic disavowal of the Trans-Pacific Partnership (TPP) trade agreement in January prompted the question 'Is the

Toward more stable capital flows

Globalisation has received a bad rap lately, being blamed for lost jobs, depressed wages, rising income inequality, Brexit, and the election of Donald Trump. As the European Central Bank's President Mario Draghi observed at this year’s gathering of central bankers at Jackson Hole, the social

Ten years after the GFC, are we safe?

Ten years ago this month, Northern Rock experienced the first depositors' run on a British bank for 150 years and failed shortly afterwards. This was not the first manifestation of the global financial crisis: French bank BNP Paribas had frozen withdrawals from mortgage funds the month before; US

Free trade is being deferred but not reversed

This is the first in a three-part series on the future of world trade from a global (part 1), Asia Pacific (part 2) and Australian (part 3) perspective. Is protectionism on the rise? As we moved into 2017 the conventional wisdom was 'yes'. The G20 warned about it in 2016. The annual January

Addressing global capital flows

International capital flows present serious policy challenges. In textbook economics, such flows are unambiguously beneficial. But volatile flows were a key cause of the 1997 Asian crisis, cross-country financial linkages exacerbated the 2008 global crisis, and capital flows were once again central

Japan’s five years of Abenomics

For many international observers, the Japanese economy is an enigma. On the face of it, the economy has been in bad shape ever since the Japanese stock market began to crash in late 1989, almost 30 years ago. Yet as you wander around Japan, both in Tokyo and across the country, it hardly seems a

Taxing global capital

Over the past quarter-century, global capital has become far more mobile and some foreign investors have become more sensitive to company tax issues. Much ingenious effort has been devoted to shifting company profits to tax jurisdictions with low rates and to avoiding company tax entirely. Perhaps

Abenomics loses some of its razzle-dazzle

One of the hallmarks of Shinzo Abe’s longevity in power has been his ability to switch back to bread and butter economic issues when he tests the patience of voters with his more nationalistic inclinations. But an interesting feature of his latest series of political setbacks has been the way

America: Full employment is not enough

On the surface the US economy has had a successful recovery from the 2008 Great Recession, with eight years of unbroken growth and unemployment well below 5% for more than a year. So why is the national mood so joyless? Why do many commentators attribute the unexpected Trump victory to economic

Is the relationship between growth and inflation shifting?

With all of the focus on interest rates, sometimes fundamental assumptions underpinning monetary policy are overlooked in the commentary. At times like this, when there are tentative but unmistakeable signs of possible change in those fundamentals, it’s worth stepping back to look at the big

What NAFTA renegotiation means for Australia

It was always part of the Trump agenda to do something about the North American Free Trade Agreement (‘one of the worst deals ever’) covering the US, Canada and Mexico: the outcome is renegotiation rather than the threatened termination. The Office of the United State Trade Representative has

How the IMF evaluates the Asian financial crisis

With this month marking the 20th anniversary of the forced floating of the Thai baht, the IMF has joined the numerous commentaries looking back on the Asian crisis and the lessons learned. The tone of a recently published blog post by IMF Deputy Managing Director Mitsuhiro Furusawa is one

The G20 Hamburg riots and the German election

In many ways, the city-state of Hamburg embodies the self-image that contemporary Germany likes to project. With sparkling new galleries and trendy cafés interspersed among rough-and-tumble beatnik quarters and burly workers' bars, it exudes an elegant but unpretentious charm. The gleaming new

Safeguarding competition in a cyber economy

The European Commission in Brussels has fined Google €2.4 billion for using its dominant position in search to advantage the Google price-comparison service. The internet giant has yet to give a substantive response, but this case illustrates the challenges that new technology poses for

A new era of leadership by the G19?

US President Donald Trump arrived in Hamburg for the G20 leaders meeting no friend of globalisation and multilateralism. Most of the analysis so far has focused on Trump himself and the uncertain future of the US-led international economic order. Yet the summit should also bring into sharper focus

What did we learn from the Asian crisis?

Twenty years ago next weekend, the Thai authorities abandoned their costly defence of a fixed exchange rate, allowing the baht to float. Thus began the Asian crisis, which brought to an end the Asian Miracle era for the countries involved. Not only did Thailand, Indonesia and South Korea suffer

Greek debt: kicked down the road yet again

It is almost eight years since the Greek debt crisis began. Now, with Greek GDP 25% lower than at the start of the crisis and nearly one quarter of the work force unemployed, the European creditor countries have once again failed to reschedule the debt in a way that would be sustainable and allow

Beware the infrastructure debt trap

Much has been written about the massive infrastructure investments needed to sustain Asia’s growth performance. The Asian Development Bank estimates that the region’s infrastructure will require investments of $US26 trillion by 2030, or $1.7 trillion annually, more than double its estimate less

No consensus on the Washington Consensus

Sam Roggeveen's discussion with Allan Gyngell is a reminder that the Washington Consensus means different things to different people. Let's try to sort out the diverse interpretations. As originally formulated by John Williamson, there were 10 principles which, he believed, would find widespread

Is the US economy at full employment?

After the painfully slow recovery from the 2008 great Recession, US unemployment is now 4.4%, well below the level commonly regarded as 'full employment'. This would suggest that the economy has reached capacity, with some arguing that the current lacklustre rate of growth is in fact 

TPP: With one down, can 11 stand?

Reports of the death of the Trans Pacific Partnership (TPP) were exaggerated – or at least premature. Move over a TPP of 12 nations (TPP12) and make way for TPP11, the lower number reflecting the withdrawal of the US from the agreement. When President Trump withdrew the US from the TPP in

No, wait! Globalisation makes a comeback

The hilltop Sicilian town of Taormina is best known for its medieval buildings, the ruin of an immense Roman theatre, a disturbing view of Mount Etna smoking nearby, and a pasta sauce made with eggplant. In recent weeks the tourist town has also been cluttered by bored, heavily armed carabinieri as

Capital flows to emerging economies: Still unresolved

This year marks the 20th anniversary of the Asian Financial Crisis. Many factors were involved in that disaster, but grossly excessive foreign capital inflows were the key macro-economic problem during the boom years preceding the crisis. These flooded out when 'euphoria turned to panic without

Trumponomics: The art of the trade deal

President’s Trump’s trade policies are still evolving, but they are turning out to be rather different from his pre-election rhetoric. Concerns about an all-out trade war are fading away, as is the threat of bilateral 35%-45% tariffs against Mexico and China. The planned renegotiation of NAFTA

Indonesian prosperity needs certainty on resource regulation

Among the many floral tributes to Jakarta Governor Basuki Tjahaja Purnama, who lost his bid for a second term in last month's religiously-charged election, one in particular struck me. 'Mr Ahok,' it read, using the governor's nickname, 'we are waiting for you to become minister of energy and

Trans-Pacific Partnership without America

When President Trump took America out of the Trans-Pacific Partnership in January, this seemed to be the end of the quest for a ‘platinum standard’ set of rules to govern global trade. Japan, the second-largest signatory, quickly announced that it was not interested in pursuing a TPP-11, with

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