Tuesday 20 Feb 2018 | 16:49 | SYDNEY
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Global Economy

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.

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.

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.  

Central banks changing of the guard

Breaking tradition, President Donald Trump has not reappointed Janet Yellen to another term as chair of the US Federal Reserve. Elsewhere, central bank leadership is also in transition. What does this mean for central bank independence? In America, where political appointments of senior

China’s cobalt conundrum in Congo

More than half of the cobalt that goes into phone batteries and electric vehicles worldwide – 66,000 of 123,000 tons produced in 2016 – is sourced from the Democratic Republic of Congo (DRC). Global demand is expanding rapidly. But lawmakers in Kinshasa have decided to cash in, targeting Western

The tide is turning against US financial regulation

For most of the decade since the global financial crisis, financial regulation has been strengthened. Now the tide is turning in America. Reform has come up against the combined forces of Wall Street lobbying and Donald Trump’s deregulation agenda. It is beyond dispute that the financial crisis

China’s economic gloom merchants

Markedly slower growth and imminent financial crisis have been the common dual predictions for China over the past decade. China’s growth has indeed slowed from its unsustainable breakneck pace in the two decades before the 2007–08 global crisis, but since then has settled down to a steady 6–7

Sea cables in a thawing Arctic

China has made a significant foray into the Arctic with the creation of a data “silk road”. Strongly supported by a newfound closeness with Russia, preliminary planning of a Chinese and Finnish–led trans-Arctic cable along the Arctic’s Northeast Passage in partnership with Japan and Norway

Don’t renegotiate the Trans-Pacific Partnership

Australia was quick to welcome US President Donald Trump's casual comment that the US might be prepared to join the Trans-Pacific Partnership if a "substantially better" deal could be struck. Yet while making it clear that we would welcome US participation on the terms already negotiated,

What a US–China trade war would look like

Sometime soon, US President Donald Trump will announce his plan to respond to what the administration calls China’s “economic aggression”. When he does, it is not only China that needs to be prepared to respond. Together accounting for well over a third of global output, the collateral damage

Behind the Australia–Canada ‘wine war’

Australia has formally lodged a complaint against restrictions some Canadian provinces have placed on the sale of imported wine in grocery stores, in what has been described, somewhat dramatically, as a 'wine war'. Australia's action was described in the Ottawa Sun under the headline&

Xi saves sea slugs on the sea floor

This post is based on Episode 16 of The Little Red Podcast, featuring Kate Barclay and Michael Fabinyi of the University of Technology, Sydney. My first culinary meeting with a sea cucumber - bêche-de-mer or BDM in its processed form - came out of curiosity. After nearly two decades travelling

Why GDP grows and people feel worse off

Gross domestic product (GDP) has lost its lustre as a measure of wellbeing. Nobel Prize winning economist Joseph Stiglitz is running a project to explore its shortcomings. The Economist noted pithily that GDP ‘was (and is) a measure of production, not of welfare’. Western nations probably

Rethinking macro-economics: Fiscal policy

My recent post on rethinking macro-economics argued that monetary policy did all it could (and maybe was overstretched) during the weak recovery from the 2007-2008 crisis. The blame for the failure to achieve a robust recovery lies elsewhere, mainly with fiscal policy. The background for this

The Bitcoin bubble

With Bitcoin trading at more than US$10,000 and suggestions it is not just a technological breakthrough, but also an exemplar of how to get around the failings of the nation state, it's time to try to sort out the various claims. Is it the next Amazon or tomorrow's Ford Edsel – a dismal flop? Is

Risk aversion in domestic Chinese politics

The 19th Party Congress was a watershed for the Xi administration. Feverish speculation about candidates for promotion the Politburo Standing Committee is over, but their policy significance much as before: enigmatic. There is a natural interest in factional or interest group allegiance. It is now

Converging approaches on Chinese investment

This article is part of a series for the Australia-UK Asia Dialogue, co-hosted by the Lowy Institute and Ditchley Foundation, and supported by the Department of Foreign Affairs and Trade and the Foreign and Commonwealth Office. Although both have been very open to foreign investment, Australia and

Economic diplomacy brief: Geo-economics as the new Great Game

Economic integration as a pathway to peace has been a familiar theme of recent Australian international policy discussion despite the historical debate amongst strategists about whether trade really is a disincentive to war. But one of the more striking lines in the latest Foreign Policy White

Fantasy solutions for taxing global capital

Australia’s Treasurer Scott Morrison used a recent speech to support the current round of company tax reductions, aimed at improving the incentives for foreigners to invest in Australia. He argued the case is made more pressing by US proposals to reduce its company tax. Yet Morrison greatly

Whoa, Canada: Explaining the TPP deal that wasn’t

The strong expectation of the leaders of many countries involved in the Trans-Pacific Partnership (TPP), including Prime Minister Malcolm Turnbull, was that an agreement would be concluded in the margins of the APEC Summit at the weekend in Vietnam. This was to be a significant achievement given the

Rethinking macro-economics: Monetary policy

For the countries affected by the 2007-08 financial crisis, the recovery has been lacklustre. There was no self-equilibrating 'V'-shaped return to the pre-crisis GDP growth trajectory (see the familiar graph below, or here). Nearly a decade on, the recovery may be more assured, but the performance

The two Americas at COP23

Before his fall from grace, former Democratic vice-presidential candidate John Edwards used to talk about 'the two Americas' to describe the gap between the poor and the wealthy. But the phrase earned an afterlife, not least to describe the philosophical chasm between the coastal areas that

The first global supply chain

The city of Ternate in eastern Indonesia seems forgotten by time. Its quiet bustle is confined to the coastal fringes of Mount Gamalama, with its imperious presence. The most prominent building in the low-slung city is a monumental new mosque, minus two of its four minarets that fell down in a

Central banks and the inflation conundrum

Inflation in the UK hit 3% for the year to September, but elsewhere it remains quite low, despite a strengthening global economy. Consumer price inflation in the US, for example, is sitting around 1.7%, yet output growth in the year to September was the strongest since 2015 and the unemployment

The future role of international financial institutions

The role of the multilateral development banks (MDBs) and other international financial institutions (IFIs) is back in the policy spotlight. The latest attention comes via the G20 Eminent Persons Group (EPG) on Global Financial Governance, formed by G20 Finance Ministers at their meeting

Anti-migration sentiment the chief threat to openness

In Choosing Openness Andrew Leigh makes a robust, refreshed case for free trade and investment. Both are important sources of the acceleration of global output growth over the last two decades, and of Australia’s long economic expansion since 1991. But while the case for relatively free investment

Global growth: Choppy forecasts, but smooth sailing

It's been tough for those writing the IMF's World Economic Outlook in recent years. 'Is the Tide Rising?', the report asked in 2014, only to conclude later that same year that 'Legacies, Clouds and Uncertainties' still surrounded the global outlook. The next year there were 'Cross Currents', and

Global macroeconomic puzzles

Just as the world economy seems to be settling down for slightly faster growth, disarray in the macroeconomic debate leaves policy-makers scratching their heads and financial markets confused and edgy. US Fed Chair Janet Yellen is perplexed by current low US inflation. In the latest World Economic

Abe gambles on a stoic Japanese electorate

With his dynastic heritage, five years of assertive nationalism as Prime Minister, and eponymous brand of economics, Shinzo Abe warrants a seat at the top table of global conservative politics. But in his rush to an early election this week the Japanese leader will be counting on a boost from the

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