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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.  

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

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

What’s ahead for the global economy?

January is the month for new resolutions and economic forecasts and, sometimes, a bit of soul-searching over past inaccuracies. The International Monetary Fund, the chief forecaster for the global economy, just published an update on its October forecast. As usual, the IMF's central

Obama's legacy: Bold leadership on climate

Battling climate change was a signature issue of President Barack Obama’s tenure, particularly during the his second term. In contrast, President-elect Donald Trump has called climate change a hoax perpetrated by the Chinese, vowed to roll back climate regulations such as the Clean Power Plan (CPP

Why is it so hard for the IMF to accept criticism?

The IMF's Independent Evaluation Office (IEO) was set up in 2001; since then it has produced 26 thoughtful and substantial reports on a wide range of IMF activities. Now the head of the IEO has co-authored a book with the key recommendation that the IMF should use the IEO evaluations to enhance its

Does Trump threaten Federal Reserve independence?

Will the well-established independence that the US Fed currently enjoys come under threat from a Trump administration, with its unconventional economic ideas? The checks and balances help: Janet Yellen’s tenure until January 2018 is assured and the Fed’s board turns over slowly, with

Unbundling globalisation

Brexit and Trump’s victory have caused a reassessment of economists’ rose-tinted vision of globalisation. Richard Baldwin’s The Great Convergence provides another perspective on what has happened and why it has not turned out to be as universally beneficial as was promised. Baldwin sees the

Why the TPP should be saved

Perhaps there is, as Ross Garnaut has argued, no silver lining to Donald Trump’s economics. But there may be a small silver lining to Trump’s rejection of the Trans Pacific Partnership (TPP) and his embrace of protectionist policies during the campaign. It depends if the response to these helps

Indonesia considers trade options post TPP

US President elect Donald Trump's confirmation he intends to pull out of the TPP has led to confusion and uncertainty across the region. For its part, Indonesia is still keen to sign on to the TPP but there are many factors to consider in the cost-benefit analysis on the topic the

Trump-sized upheaval in climate movement

The election of Donald Trump as the next president of the United States cast a long shadow over the climate conference in Morocco earlier this month. Delegates spent a lot of time expressing hopes that President-elect Trump was not serious when he declared climate change theory to be a 'hoax'

How US protectionism would threaten Australia

The impact of US President-elect Donald Trump's intended withdrawal from the Trans Pacific Partnership (TPP) on Australia could be seen as relatively benign, if one concentrated soley on trade in goods and services. After all, we have the Australia-United States FTA, concluded in 2004. The

Trump's voters will be disappointed by his economics

With all the campaign blather, posturing and hyperbole, we don’t know much about the specifics of President-elect Trump’s economic policy. One thing is clear: it is not possible to satisfy the inchoate economic expectations of those who elected him. Let’s focus on a couple of economic issues

APEC: Staggering past relevance

Even though it is the region’s second oldest multilateral mechanism, APEC continues to find relevance hard to come by. Best known for the photo taken at the annual leaders’ summit at which said leaders bond over the humiliation of donning often garish 'national attire', this grouping has never

The switch to renewables: Lessons from small islands

Those actively pushing for a future where renewables take over electricity generation often point to island grids such as El Hierro in the Spanish Canary Islands, Kodiak Island in Alaska, and King Island in Australia’s Bass Strait. On those islands and others, renewables have proved a

Gloomy forecasts for economic cooperation in Moscow

Last week the Russian Presidential Academy of National Economy and Public Administration hosted a conference on the G20, BRICS and furthering international economic cooperation. In the same week, The Economist launched a ‘special report on Russia’ featuring a cover image of Vladimir

Barnaby Joyce's mixed messaging on property rights

There’s been a good deal of mixed messaging coming from Australia's Deputy Prime Minister Barnaby Joyce recently. This week he made headlines by declaring to an audience (which included the Chinese ambassador) that Labor's policies for insisting on rules concerning vegetation

The G20 Studies Centre draws to a close

Today marks the drawing down of the G20 Studies Centre at the Lowy Institute. The Centre was established to provide high quality public analysis of international economic governance. The government supported this work over the most intense period of the G20 for Australia, in the lead-up and the

Revitalising the multilateral trading system

The multilateral trading system has served Australia and our region exceptionally well, and it has delivered a program of trade liberalisation and reform over the years that has been important in underwriting global growth. But there is no doubt it is now facing multiple strains. The regrettable

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