Wednesday 12 May 2021 | 06:31 | 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.  

Do we need 'full-spectrum defence'?

The first thing to say about Alan Dupont's recent paper is that he is absolutely correct about the dire condition of Australian strategic policy. As he suggests, we lack a coherent answer to the most basic question of all: 'What do we want our armed forces to be able to do?' Until that question

China and the AIIB: Towards a new rules-based order?

Australia's likely decision to become a founding member of the Asian Infrastructure Investment Bank (AIIB) marks the loosening of America's 70 year command over global governance. US Secretary of State John Kerry and World Bank President Jim Yong Kim at the African Growth and Opportunity Act

Park Geun-Hye's presidency is adrift

Park Geun-Hye has been president of South Korea for just over two years, with almost three still go, and the emerging consensus here (I'm writing from South Korea) is that her presidency is already adrift. It is not a catastrophe – she is not the George W. Bush of Korea – but it is 

Giganto-capitalism: China takes another wrong turn

15 years ago, Beijing made an important strategic decision about its sprawling aviation manufacturing monopoly, AVIC. Dissatisfied with AVIC's slothfulness, and keen to promote competition, the state's planners split the company in half, creating two firms. Unimaginatively named AVIC-1 and AVIC-2

Negative interest rates: We are flying blind

We live in strange economic times. Depositors in Denmark are paying interest to their banks and borrowers are being paid when they take out a loan. The basic principles of finance have been turned on their head. One commentator has noted that 'something economists thought was impossible is

The G20 can help women enter the global economy

International Women's Day was celebrated yesterday, and there is cause for optimism with regards to progress in women's rights and important commitments undertaken to reduce gender inequality. Many international organisations came out in strong support of the day, including UN Women and the IMF. In

Ukraine: IMF sent in where others fear to tread

This week the IMF Executive Board will consider a proposal to provide Ukraine with a US$17.5 billion Extended Fund Facility. The IMF Managing Director explains that this program 'can succeed'. But it has to be said that the chances are low, given current geopolitical circumstances and Kiev's recent

India's budget: Will subsidies fall as predicted?

The new Indian Government brought down its first full-year budget last weekend. It has been keenly anticipated. Business Standard claimed: 'The market is expecting the Union Budget to be path-breaking, similar to the one in 1991, which led to the liberalisation of the Indian economy.'  As it

Bibi goes to Washington

For most of my professional life I have been addicted to Middle Eastern politics. In recent years, however, I have started to kick the habit, so I had not planned to get up at 3am Sydney time to watch Israel Prime Minister Benjamin Netanyahu deliver his much anticipated and controversial address

Julie Bishop goes to Tehran

To everyone's surprise, it was announced on Monday that Australian Foreign Minister Julie Bishop intends to travel to Tehran in April 2015. The visit isn't about the nuclear negotiations with Iran. After all, while Australia would rather not see Iran go nuclear, it isn't exactly a foreign policy

The 'beggar-thy-neighbour' currency wars

Leon Berkelmans is in good company in defending the policy actions which have come to be described as 'currency wars'.  Ben Bernanke gave the same defence of the US Fed's actions while he was Chairman: while low interest rates and 'quantitative easing' (QE) may give the domestic economy an extra

A currency war would be no bad thing

The European Central Bank has finally begun to engage in quantitative easing. The euro depreciated on the news, which is good for the Europeans but bad for the rest of the world, right? It's another currency war – a zero sum game leading to, at best, nothing but debased currencies . At least that'

How Greece and Europe can both win

The press is making much of the academic qualifications of Greece's new finance minister, Yanis Varoufakis. His specialisation is economic game theory, which in this case might be described as 'the art of bargaining'. Good bargaining skills are, indeed, important. But there are also some basic

Timor-Leste: New prime minister, new approach

It has finally happened. After months of 'will he, won't he' melodrama, Xanana Gusmão, Timor-Leste's resistance leader and long-serving prime minister, has stepped down. His successor, Dr Rui Maria de Araújo, will be sworn in as prime minister in a ceremony in Dili later today. The new PM will

How much is too much? The debt mystery

The 2008 financial crisis left no doubt that ill-considered debt can cause major damage not just to an individual country, but to the global economy. You might think that by now, six years later, balance sheet repair would have taken debt below pre-crisis levels. However, debt burdens are

Australia is not meeting its IEA oil reserve targets

The plunge in the global oil price is a hot topic. Between June 2014 and January 2015, the price of crude has dropped by 57%. Most of the attention has been on the boon for consumers, with a litre of petrol in some parts of Australia now counted in cents, not dollars. But while Australia is

Memo to IMF reformers: Don't let Congress get you down

By Lowy Institute Non-Resident Fellow Mike Callaghan and G20 Research Fellow Tristram Sainsbury When it comes to IMF quota reform, the words of Yogi Berra come to mind: 'It's like deja vu all over again'.  IMF First Deputy Managing Director David Lipton and Managing Director Christine Lagarde,

India nuclear deal needs serious parliamentary scrutiny

The Australian parliament's Joint Standing Committee on Treaties (JSCOT) will soon review the proposed treaty between Australia and India on Cooperation in the Peaceful Uses of Nuclear Energy, signed by Prime Ministers Abbott and Modi in New Delhi on 5 September 2014. A 1984 cartoon on Australia's

Is globalisation slowing?

In the decades leading up to the 2008 financial crisis, international trade typically grew much faster than GDP. This reflected increasing global economic integration: tariff barriers were coming down, trade groups (eg. the eurozone, NAFTA, ASEAN) facilitated trade through regulatory simplification

China's investment rebalance

I am embarrassed to say that I made a mistake in the analysis below (I should have realised the results were too clear to be true!). In fact, the relative price of investment goods follows the pattern in the graph below. This mistake was discovered by Guonan Ma and staff at the RBA, who tried to

The IMF's pessimism is misplaced

When the IMF produced its last World Economic Outlook in October, one of the risks it forecast was a possible oil price increase. A US$25 per barrel increase, the IMF said, would take at least 0.5% off global economic growth. Now, even with the change in oil price twice as large and in the opposite

Is China slowing down? Not much

The Wall Street Journal: China's economic growth slowed to 7.4% in 2014, downshifting to a level not seen in a quarter century and firmly marking the end of a high-growth heyday that buoyed global demand for everything from iron ore to designer handbags. The slipping momentum in China, which

A Chinese canal in Nicaragua?

There is pride in Hong Kong that a local private company is pushing ahead with perhaps the world's largest-ever civil works project, the 280km long, 500m wide Nicaragua Canal. Construction began in December 2014. The South China Morning Post dismisses outside suspicions while modestly describing

No, the IMF did not cause the Ebola crisis

Headlines blaming the IMF for the Ebola crisis are something you may expect in the tabloid press. However, a robust debate on the role of the IMF in the spread of Ebola was started by an article in The Lancet, a leading health journal. Four British professors claimed that the fiscal austerity

Is China fragile?

The Black Swan, by Nassim Nicholas Taleb, is a parable for unanticipated risk: the possibility of 'unknown unknown' events that no-one sees coming. In a new essay, The Calm Before the Storm, Taleb further posits that perceptions of risk are distorted by 'fragile stability.' Some countries (eg.

Cambodia's controversial dam seems set to go ahead

What is happening with Cambodia's Lower Se San 2 dam? Elliot Brennan's citation of a Bangkok Post report of Cambodian Prime Minister Hun Sen's speech at the opening of the Stung Russey Chrum Krom hydroelectric dam in Koh Kong province in Tuesday's Southeast Asia links is interesting for a number

Oil drops 50%, world shrugs

What does the fall in the price of oil do for global economic growth? If the price of oil had swiftly risen by 50%, economic commentators would be calling this an economic disaster. In fact the price has fallen by 50% since June last year, yet this ray of good news hasn't pierced through the

India's new Asia-Pacific strategy: 'Act East'

It has been a busy year for India in the Asia Pacific. From multilateral summits to bilateral diplomacy, the Modi Government has deliberately moved to step up engagement with its East and Southeast Asian partners. At this year's India-ASEAN Summit, Prime Minister Modi announced his intention to

Lima climate conference: Slow movement on Planet UNFCCC

As haggard negotiators left the UN climate change conference in Lima in the early hours of Sunday morning, many observers noted the contrast between the political acrimony that characterised the final days of these tortured discussions and the sense of optimism that many felt going into the talks

Why Peter Thiel is wrong about monopolies

A few weeks ago Sam Roggeveen quoted PayPal founder Peter Thiel, who argued that competition is over-rated and monopoly would enhance innovation. We shouldn't be surprised that business people are in favour of monopoly. In 1776 Adam Smith observed: People of the same trade seldom meet together,

G20 Brisbane Summit: Australia's adolescence on show

Australia had a prime chance to demonstrate its adult status in chairing the G20 Summit this year. What did it do with the opportunity? It showcased some of the characteristic behaviours of an adolescent country, my term for Australia in a new Lowy Institute Paper. Tantalisingly, it also showed

Sanctions and the coming Russian recession

The IMF, OECD and the Russians themselves have substantially downgraded their Russian economic growth forecasts for 2015. The fall in the oil price is partly responsible. However, heightened 'geopolitical risk' was also mentioned as a drag on activity, along with the effect of sanctions. But just

China's G20 year will raise human rights concerns

The G20 party may have ended in Brisbane, but the show rolls on. The leaders' forum will head to Turkey in 2015 and, in his final act as G20 chair for 2014, Australian Prime Minister Tony Abbott confirmed 2016 will see leaders heading to China. I've just co-written a paper on what the first ever

Financial stability: Did the G20 go far enough?

Financial stability was not the most headline-grabbing topic discussed at the Brisbane G20 meeting, but judging from the official communique word-count (a full 175-word paragraph in the three-page document, plus four substantial items in the annexes), a fair bit must have happened. Governor of

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