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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.  

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

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

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