Saturday 15 Dec 2018 | 21:57 | 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.  

The TPP and intellectual property rights

Earlier posts have discussed how the Trans-Pacific Partnership (TPP) – if it comes into force – will be part of the process of setting global rules across a wide range of issues, including intellectual property rights. The just-released Harper Competition Policy Review notes the importance

Post-2020 emission target a test for Australia

Failure to pay proper, high-level attention to negotiations under the UN's climate convention (UNFCCC) seriously endangers Australia's national interest in areas beyond climate change. This is the important headline conclusion from a timely Lowy Institute paper by Howard Bamsey and Kath Rowley. The

China's reserve-currency ambition

In mid-2009, with American finance reeling from the Lehman Brothers collapse, the nation's Treasury Secretary addressed his prestigious alma mater Peking University. 'How safe are China's investments in US Government debt?', challenged one student. 'Very safe', the Secretary answered to derisive

Is the Great Moderation over?

In what appeared to be a case of spectacularly bad timing, the Bank of England held a conference in September 2007 on 'sources of macroeconomic stability'. You see, from the early 1980s the business cycle in developed economies had become much less volatile. A term had been coined for this

One belt, one road? China's community of common destiny

More details emerged over the weekend about two Chinese big-ticket initiatives, 'One Belt, One Road' and Asian Infrastructure Investment Bank (AIIB). Speaking at the Boao Forum for Asia, President Xi Jinping outlined his vision for the region in a keynote address titled 'Towards a Community of

Cyclone Pam: A photo essay from a volunteer

By Eva Westfield, who was an Australian volunteer based in Port Vila. Consistently rated the most dangerous countries in the world in terms of disaster risk, Vanuatu is no stranger to the destruction caused by natural hazards. Talk of Cyclone Pam hitting Vanuatu started about a week before it

Australia needs a modern and globalised tax system

The Abbott Government will shortly release a discussion paper on the Australian tax system. It will be the first step towards the much anticipated tax white paper. International factors should figure prominently in the white paper — specifically, how to ensure that Australia has a resilient tax

UK budget: A test for 'expansionary austerity'

The 2008 global financial crisis provided a rare test-bed for macroeconomics — an opportunity to sort out some old controversies. One issue dominated the debate during the recovery phase: with national budgets and official debt pushed up by the crisis, should budget austerity be imposed as a

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

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