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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.  

Infrastructure: An opportunity for emerging economies

Low global interest rates since the 2008 global financial crisis seem to provide an ideal opportunity for boosting infrastructure investment. Bond rates have been historically low, so many governments can borrow at less than the rate of inflation. There is spare productive capacity in most advanced

Australian economic reform: The next generation

Growth in HALE index, Intangible GDP, net national income and GDP, 2005-2014. John Edwards' Beyond the Boom tilts effectively against Australia's congenital Hanrahanism. It points out the extent to which we managed to finance the wild ride of the boom (the massive surge in mining investment, from 2

Australia's economy: Stimulus, saving and the GFC

John Edwards' Beyond the Boom is a welcome follow-up to his 2006 Quiet Boom, which I reviewed at the time in conjunction with Ian Macfarlane's Boyer Lectures. I agree with the argument that economic reform should not be sold on the basis of a faux crisis or economic failure narrative. If proposed

Resources boom: Australia's misplaced pessimism

'We'll all be rooned,' said Hanrahan, 'before the year is out.'   Pessimism is a key part of the great Australian tradition, reflecting a history of booms and busts. It has infected the debate on the mining boom of the past decade. But how does it make sense to treat a once-in-a-century windfall

The economic impact of environmental crime

A new report from the UN Environment Programme claims that  the monetary value of 'environmental crime' — logging, poaching, animal trafficking, illegal fishing, illegal mining, etc — is between US$70 billion and US$213 billion each year.  If this upper figure is to be believed, then

Australia's economy: Luck will favour the prepared

Unemployment remains fearfully high in much of Europe, growth in the US is tepid and China may be on the verge of an unprecedented slowdown. In the midst of all this unpleasantness, Australians look around their bountiful land and ask, Can our luck last? In Beyond the Boom, John Edwards, says it

The myths of the mining boom

In widely reported censures by business leaders and economists, in warnings by politicians, public servants and journalists, we often encounter grim themes about the Australian economy. The mining boom accounted for Australia's apparent economic success in recent times, they say. But Australians

Asia's coal demand: You ain't seen nothing yet

Sam Roggeveen yesterday showed us how much demand for coal has risen in Asia during this century. Now consider what the future will hold. A recent joint publication from the International Energy Agency and the Economic Research Institute for ASEAN and East Asia forecasts what is in store for the

China's banking sector: More equity, less debt

So China's economy will soon overtake the US in PPP terms. Some commentators believe market-rate calculation is more meaningful than PPP, and forecast that on this basis China still is decades away from catching America. For here is a remarkable fact: the equity market capitalisation of the US

Spain down, but will lead Europe again

Spain is going through a rough spot. Two kings are down and its permanent aches — restless regions, high unemployment, illegal immigration from Africa — persist. And yet Spain, with its proud history, will be back at the forefront of continental Europe. 'Le roi est mort, vive le roi', say the

Cameron taking the Great out of Britain?

Strong stuff from Gideon Rachman: Will David Cameron go down as the prime minister who turned Great Britain into Little England? If things go wrong for him, he could end up presiding over the departure of Scotland from the UK – swiftly followed by Britain’s own departure from the EU. Many

Climate change: Asia leads, but not in a good way

Vox has some remarkable — and depressing — charts on why the world is failing on climate change, all derived from BP's latest Statistical Review of World Energy. Half of the world's greenhouse gas emissions now come from Asia, with China alone consuming half of the world's coal. This is the

Does inequality make a country less secure?

In the first post in this series I explored several implications of rising inequality with respect to military capacity and international security. In this post, I will explore the relationship between inequality and internal stability. The association between economic disparities and social

G20: dealing with too-big-to-fail banks, corporate tax avoidance, and development

This issue of the G20 Monitor addresses the ‘too big to fail’ dilemma of major financial institutions, combating tax evasion and avoidance through ‘base erosion and profit shifting’ (BEPS), and a report from the ‘G20 and Development’ conference hosted by the G20 Studies Centre and

When should the IMF apologise?

If you make a mistake, common courtesy says you should apologise. The IMF made a mistake in its forecasts for the UK economy — a high profile mistake. It admitted it got it wrong. But should the IMF have apologised? In 2013, IMF chief economist Olivier Blanchard publicly said that UK

Climate and energy policy merging, but where is Australia?

Australia's low level of ambition ahead of next year's climate change talks in Paris reveals more than the negative effect of domestic politics on our international reputation and economic future. The broader message to trading partners, investors and policymakers is that Australia is unwilling

Global financial crisis: Did the system really work?

Much of the mountain of commentary and analysis of the 2008 Great Recession has been either critical (Paul Krugman might be typical), or a self-interested defence (Tim Geithner and Larry Summers provide examples). Daniel Drezner's The System Worked is atypical in two respects: he was not a

Women, decision-making and the extractive industries

Members of the Publish What You Pay network at a meeting in Jakarta. Photo courtesy of author. For the last three years I have been lucky enough to coordinate the Publish What You Pay (PWYP) campaign in Australia for transparency and accountability in the extractive industries (oil, gas and

Climate change: The G20 can add value

Yesterday I gave an interview to the Sydney Morning Herald for a story published today: 'Stopping climate change talks "could hurt" G20' (p. 8 in the paper version). Here I want to offer a little more background to the three direct quotes that made it to the final story: Climate change will be

Foreign direct investment: Ten simple questions

1. Why is FDI so sensitive?  Here is an impolite truth about international commerce: governments, even 'liberal capitalist' ones, are obsessed with sovereignty. Foreign direct investment (FDI) represents a breach of sovereignty. This year's Lowy Institute Poll shows that most Australians view FDI

G7 in Brussels: Mood matches sombre setting

The G7 leaders' meeting in Brussels concluded yesterday, the first such summit for fifteen years. It was to have been a G8 summit hosted by President Putin at an idyllic golf resort in Sochi, the home of the last Winter Olympics. But G7 members boycotted the G8 summit following Russia's

Foreign-investment anxiety revealed in Lowy Poll

I've just written on the widespread antipathy in Indonesia to foreign investment, and how it is colouring the presidential election campaign. I attributed this hostility to the historical experience of colonialism. Now the Lowy Institute's annual poll reminds us that a similar (if less pronounced

How to manage economic nationalism in Indonesia

Both Indonesian presidential candidates have taken a strongly nationalistic stance on foreign investment in their pre-election campaigning. When one of them takes office in October, will they be 'mugged by reality' and soften their stance? If not, how much does it matter? When Indonesia achieved

A parallel Chinese financial order

The Financial Times ran a front page piece last Monday claiming that China has ordered a ban on state-owned companies using Western management consulting companies. It is alleged by senior Chinese sources that 'foreigners use their consulting companies to find out everything they want about our

Why are economists such poor forecasters?

Tim Harford on the astonishingly poor record of economists in forecasting recessions: The kind of institutional chief economist whose pronouncement makes it into Consensus Forecasts will stick to the middle of the road. Most countries, most of the time, are not in recession, so a safe strategy is

Lopsided economic growth in the Philippines

As one of the fastest growing economies in Asia, the Philippines formalised its new status as the toast of the town among global investors by hosting (on  21-23 May) the prestigious World Economic Forum on East Asia, which brought together leading businessmen, policy makers, and scholars from

Women in finance (or: Why is there no Lehman Sisters?)

 [youtube:fwIO4zbJt10#t=2229] As I mentioned previously, I was in the US last week to attend the Council of Councils conference in New York. Council of Councils is an initiative of the Council on Foreign Relations, and brings together 24 foreign policy think tanks from around the world around the

The demise of the Australia Network

May should have been a milestone month for Australian international broadcasting, and arguably the most celebratory in the 13-year history of the Australia Network. ABC executives were due to sign a prized deal with the Shanghai Media Group, giving the ABC the most extensive access to Chinese

Falafelnomics: Purchasing power in the Middle East

From Forbes: The Big Mac Index – now a golden standard for measuring purchasing power– doesn’t quite size up the region’s economic situation.  This index determines the purchasing power of different currencies by comparing the prices of McDonald’s signature hamburger in various

The China-Vietnam standoff: Three key factors

So, another maritime incident between China and one of its neighbours. There are reports from officials in Hanoi that Chinese and Vietnamese vessels collided on at least two separate occasions in the South China Sea on Sunday, in waters 120nm off the Vietnamese coast. The dispute began last

China's economy is #1, so now what?

So China officially becomes #1 in purchasing power parity (PPP) output and that is indeed a BFD. But there is both less and more here than meets the headline, and that's what's interesting. It's obvious that China surpassed the US several years ago in sheer volume terms, as revealed by PPP

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