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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.  

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

China’s financial concerns

The China bears have been around for years, continuously predicting the end of China's stellar growth story. In 2012 Michael Pettis expected annual growth to average 3% over this decade and in 2015 Tyler Cowen warned of an imminent disastrous financial collapse. So far, so good. China's

Lessons from India on migration’s role in trade policy

Prime Minister Turnbull yesterday carefully signalled a potential India-Australia Free Trade Agreement is not a priority for his government. This comes after the Abbott Government set a very public benchmark for concluding an India-Australia FTA by the end of 2015, an overly optimistic commitment

China's huge industrial ambitions

The RAND Corporation has just published a new report on Chinese investment in the US aviation sector. Given the air of concern in Australia and sometimes the US over Chinese investment in strategic industries (remember when China's CNOOC tried to buy US oil giant UNOCAL?), the tone of the report is

Are US Fed rate projections ‘behind the curve’?

Last Wednesday the US Federal Reserve raised the Fed funds rate for the third time since the 2008 financial crisis. Financial market commentators have worked hard over this eight-year period to create downside drama in the narrative of the return of interest rates from the abnormally low levels of

Global lessons from South Australia's power dilemma

South Australia (SA) has become a global case study for what can go wrong when energy policy fails to keep pace with changes in technology and commodity markets. Following the closure of the Northern coal-fired power plant in May 2016, SA has experienced a set of blackouts. The most significant

The global economy: Surviving Trump just fine

Two months into the Trump Administration, is it overturning the ‘liberal world order’, as widely feared? By now we ought to have some idea. My conclusion: no, it isn’t. If there was a liberal world order in the global economy on 20 January, 2017, it is still there today. The Administration has

Prioritising trading blocs over nation states

While there are natural cultural and institutional ties between Australia and the United Kingdom, it would be folly to choose the UK over the European Union; Australia’s trade with both the Asia-Pacific and the European Union must take priority over any favours to colonial history. As the United

Why everyone is talking about universal basic incomes

When the Indian Finance Ministry devoted a full chapter of its recent Economic Report to the idea of a universal basic income (UBI), it might seem like revolutionary ‘pie in the sky’ musings, especially as the cost would equal nearly half of India’s budget. But in fact the ministry is just

Why Asia still needs a development bank

It is easy to forget that Asia still hosts most of the world’s poor people given the region's remarkable economic success in recent years. Yet almost half of the world’s extremely poor people (326 million out of a global total of 766 million) still live in South and East Asia, according to the

Is Trump reigniting the currency wars?

In 2010 Brazilian Finance Minister Guido Mantega warned that a 'currency war' was underway. Europe, the United States and the United Kingdom were attempting to boost their limp post-2008 recoveries through quantitative easing (QE) policies, which not only lowered interest rates but also depreciated

Trump’s trade protectionism

President Trump is off to a flying start on his promised trade protectionism, with executive orders on withdrawal from the Trans-Pacific Partnership and renegotiation of NAFTA, together with his threatened import duty on any US company off-shoring domestic jobs and his promise to make Mexico pay for

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