Global Economy & Globalization 2018

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International Centre for Trade and Sustainable Development (ICTSD)

The Prophets of Cryptocurrency Survey the Boom and Bust
Inside the ongoing argument over whether Bitcoin, Ethereum, and the blockchain are transforming the world.
By Nick Paumgarten
(New Yorker magazine Oct 22) The dizzying run-up in crypto prices in 2017 was followed, this year, by a long, lurching retreat that, as the summer gave way to fall, began to seem perilous. As with notorious stock-market and real-estate bubbles, innocents had been taken in and cleaned out. But both boom and bust reflected an ongoing argument over what cryptocurrencies and their technological underpinnings might be worth—which is to say, whether they are, as some like to ask, real, …
Jamie Dimon, the chief executive of J. P. Morgan, labelled crypto “a fraud”; Warren Buffett used the phrase “rat poison squared.” Legions of skeptics and technophobes, out of envy, ignorance, or wisdom, savored such pronouncements, while the true believers and the vertiginously invested mostly brushed it aside. They had faith that a new order was nigh. They pumped but did not dump.
The larger world has tended to see crypto as an asset class and, therefore, in terms defined by arrows pointing up or down, as numbers displayed either in red or in green. The fact that prices have sunk so far, from the great hype cycle of 2017, leads some to conclude that its relevance is past, its demise nigh. As a method of payment, it remains flawed, owing to sparse adoption and price volatility—it’s hard to open your crypto wallet when what you spend today on a six-pack might be enough next year to buy the brewery. Conversely, as a store of value, it has proved more fickle than the price of gold or real estate in Peru. As for its utility as a vehicle for systemic and societal renewal, it depends on whether society takes it up.

15 October
The Big Blockchain Lie
By Nouriel Roubini
(Project Syndicate) Now that cryptocurrencies such as Bitcoin have plummeted from last year’s absurdly high valuations, the techno-utopian mystique of so-called distributed-ledger technologies should be next. The promise to cure the world’s ills through “decentralization” was just a ruse to separate retail investors from their hard-earned real money.
No serious institution would ever allow its transactions to be verified by an anonymous cartel operating from the shadows of the world’s authoritarian kleptocracies. So it is no surprise that whenever “blockchain” has been piloted in a traditional setting, it has either been thrown in the trash bin or turned into a private permissioned database that is nothing more than an Excel spreadsheet or a database with a misleading name.

10 October
IMF strives to get its multilateral mojo back
The IMF needs to take steps to bolster its reputation as the guardian of multilateralism, ahead of a possible meltdown in emerging markets that could put the Fund centre stage of any rescue effort.
( “The world needs a new multilateralism.” The warning was stark and momentous given that it came from the head of the fiscal department at the International Monetary Fund, its deputy chief economist and general counsel just a few weeks before the Fund’s annual meetings.
The three senior executives were encapsulating a growing sense of pessimism among member states, financial organisations and commentators that the IMF was being sidelined by a rising tide of protectionism especially in the United States.
… the reason for the weakening of the IMF’s position has not come so much from leaders such as Donald Trump and Hungary’s Viktor Orban thumbing their noses at the multilateral organisations, but from the groundswell of public opposition that has propelled them into power. Voters are themselves questioning the benefits of international co-operation, and often for good reason. Economic inequality within nations is widening, especially in advanced economies.

9 October
World Economic Outlook, October 2018
(IMF) Global growth for 2018–19 is projected to remain steady at its 2017 level, but its pace is less vigorous than projected in April and it has become less balanced. Downside risks to global growth have risen in the past six months and the potential for upside surprises has receded. Global growth is projected at 3.7 percent for 2018–19—0.2 percentage point lower for both years than forecast in April. The downward revision reflects surprises that suppressed activity in early 2018 in some major advanced economies, the negative effects of the trade measures implemented or approved between April and mid-September, as well as a weaker outlook for some key emerging market and developing economies arising from country-specific factors, tighter financial conditions, geopolitical tensions, and higher oil import bills.

27 September
Hidden Costs of Climate Change Running Hundreds of Billions a Year
A new report warns of a high price tag on the impacts of global warming, from storm damage to health costs. But solutions can provide better value, the authors say.
A global tipping point: Half the world is now middle class or wealthier
(Brookings) Why does it matter that a middle-class tipping point has been reached and that the middle class is the most rapidly growing segment of the global income distribution? Because the middle class drive demand in the global economy and because the middle class are far more demanding of their governments. …
The middle class also puts pressure on governments to perform better. They look to their governments to provide affordable housing, education, and universal health care. They rely on public safety nets to help them in sickness, unemployment or old age. But they resist efforts of governments to impose taxes to pay the bills. This complicates the politics of middle-class societies, so they range from autocratic to liberal democracies. Many advanced and middle-income countries today are struggling to find a set of politics that can satisfy a broad middle-class majority.
The tipping point in the world today offers opportunities for business but complications for policymakers.

13 September
The US-Canada fight over dairy exposes an inconvenient truth about free markets
(Quartz) The world order built on pushing free trade NAFTA, the WTO, and other transnational institutions pushed globalization too far. A backlash is underway, evident in populist upsurges like Trump’s victory and Brexit.
Nation-states are filling the void as they claw back authority from global organizations. The question is what form the restoring of national sovereignty will take. Can countries wrest back control of their economic policies while preserving the mutually beneficial elements of open markets? Or will this impulse give way to corrosive nationalism that wields trade threats like a cudgel?
The answers will determine global prosperity for generations. And so far, what can be divined from the great North American milk fight offers some ominous clues to that outcome.

13 September
How the 2008 financial crisis crashed the economy and changed the world
(PBS Newshour) Ten years ago this week, the collapse of Lehman Brothers became the signal event of the 2008 financial crisis. Its effects and the recession that followed, on income, wealth, disparity and politics are still with us. Economics correspondent Paul Solman walks through those events and consequences with historian Adam Tooze, author of “Crashed: How a Decade of Financial Crises Changed the World.”

12 September
The Next Financial Calamity Is Coming. Here’s What to Watch.
The global financial crisis is fading into history. But the roots of the next one might already be taking hold.
Financial crises strike rich countries every 28 years on average. Often, the break between busts is much shorter.
Fast-growing pockets of debt, as in the last time around, look like potential sources of problems. They’re nowhere near as big as the mortgage bubble, and no blow-ups appear imminent. [BUT] The amount of American student debt — roughly $1.5 trillion — has more than doubled since the financial crisis. It is now the second-largest category of consumer debt outstanding, after mortgages.
Public colleges and universities, hurt by state budget cuts, increased tuition. The drop in house values also made it harder for families to tap into their home equity to pay for tuition. As a result, the financial burden shifted to students, who took on heavier debt loads to pay for school. … The bigger issue is whether growing amounts of student debt may be a drag on consumers. Some think it could be playing a role in the decline of homeownership over the last decade, an important driver of spending in the consumption-led American economy.

9 August
The example is Australian, but the topic is universal:
How Globalization Has Broken the Chain of Responsibility
(Sapiens) In today’s accelerating and overheating world, the gap between the people affected by change in local environments and the people in charge is growing ever wider
In the mid-1800s, when Karl Marx and Friedrich Engels wrote The Communist Manifesto, capitalists were easily identifiable. They were typically men, and the property owner was the proverbial man in the top hat, with his waistcoat, paunch, cigar, and gold watch. Today, the situation is far more complicated since ownership structures are transnational, corporate, and complex. Even in democratic countries, where political leaders are elected, there is a widespread feeling that the “powers that be” are further away and less approachable than before, and that there is nowhere to go with your complaints. In other words, both the economy and politics are less manageable, more difficult to understand, and harder to effectively react to.
There are alternatives to the current situation of powerlessness. One way to counter globalized power is to globalize the response by forging alliances between local community groups and transnational organizations that are capable of putting pressure on governments, public opinion, and corporations.

18 July
Nouriel Roubini: Trump May Kill the Global Recovery
In a sharp departure from this time last year, the global economy is now being buffeted by growing concerns over US President Donald Trump’s trade war, fragile emerging markets, a slowdown in Europe, and other risks. It is safe to say that the period of low volatility and synchronized global growth is behind us.
(Project Syndicate) Though the world economy is still experiencing a lukewarm expansion, growth is no longer synchronized. Economic growth in the eurozone, the United Kingdom, Japan, and a number of fragile emerging markets is slowing. And while the US and Chinese economies are still expanding, the former is being driven by unsustainable fiscal stimulus.
Worse still, the significant share of global growth driven by “Chimerica” (China and America) is now being by an escalating trade war. The Trump administration has imposed import tariffs on steel, aluminum, and a wide range of Chinese goods (with many more to come), and it is considering additional levies on automobiles from Europe and the rest of the world. And currently the renegotiation of NAFTA is stalled. Thus, the risk of a full-scale trade war is rising.
Meanwhile, with the US economy near full employment, fiscal-stimulus policies, together with rising oil and commodity prices, are stoking domestic inflation. As a result, the US Federal Reserve must raise interest rates faster than expected, while also unwinding its balance sheet. And, unlike in 2017, the US dollar is now strengthening, which will lead to an even larger US trade deficit and more protectionist policies as Trump, assuming he remains true to form, blames other countries.

19 June
Canaries in the coal mine
As the global trading system fractures, multinational firms are cutting cross-border investment
(The Economist) To look only at the headline numbers, populism and protectionism seem to be weirdly good for global business. Look more closely, however, and it becomes clear that the decay of globalisation is accompanied by a steady demoralisation of multinationals. Cross-border investment by firms is falling and bosses are being more cautious, an impulse further amplified by trade tensions. This is unlikely to change while Donald Trump remains in office.
Since 2015 … the profits of the world’s biggest 3,000 listed firms have risen by 44% in dollar terms. Share prices have soared. As for tariffs, for now they are little more than an irritant for most bosses. Plenty of Western firms are still keen on exotic thrills far beyond their borders—in May, Walmart bid $16bn for Flipkart, an Indian e-commerce company. Starbucks is opening a new shop in China every 15 hours.
Look more closely, however, and you will see that the decay of globalisation is accompanied by a steady demoralisation of multinationals. Between the fall of the Berlin Wall in 1989 and the subprime crisis some 20 years later, a few thousand corporate cosmopolitans became ever more powerful, acting as the brains of the global economy, controlling intellectual property as well as international supply chains. During the past decade, however, they got stuck in a rut.

15 June
From our friend Nick Rost van Tonningen (Nick’s Gleanings II 274)
Shanghai Cooperation Organization – The Western media gave massive, continuous & breathless coverage to President Trump’s latest ‘bull in the china shop’, “Make America Great Again” histrionics at the June 8-9 G-7 meeting in Canada to dismantle his predecessors’ laboriously constructed post-WW II global economic-political-financial institutional infrastructure. But it gave scant coverage to the June 9-10 meeting in Quingdao, China of the Council of Heads of State of the Shanghai Cooperation Organization that, apart from the Presidents of its eight member countries2, was also attended by those of Afghanistan, Belarus, Iran & Mongolia, Nigeria’s Amina Mohammed, one of the five UN Deputy Secretary-Generals, Victoria Kwakwa, the Ghanaian World Bank Vice President for East Asia, & Changyong Rhee, the Korean Director of the IMF Asia & Pacific Department, and by several heads of non-Western international agencies – in long-term global macro economic & political terms, the Qingdao gathering may outweigh any short-term gains Trump may have made in Singapore.
Shanghai Cooperation Organisation Endorses Trade Facilitation Plan
(ICTSD) As the host of this year’s meeting, Chinese President Xi Jinping highlighted regional cooperation’s achievements so far, as well as its future potential, while also acknowledging the wider global context on trade and the economy.
“While unilateralism, trade protectionism and backlash against globalisation are taking new forms, in this global village of ours where countries’ interests and future are so interconnected, the pursuit of cooperation for mutual benefit represents a surging trend,” he said, according to a transcript of his remarks published in Xinhua.
Influential SCO seeks to supplant G7
(Arab News) … the group has developed into the largest regional bloc in the world in terms of geographical coverage and population. Covering three-fifths of the Eurasian continent and representing nearly half of the world’s population, the organization is quickly becoming one of the world’s most powerful and influential groups.
Most recently, as US President Donald Trump threw the G7 summit into disarray, the leaders of the SCO meeting stressed unity and free trade. There is no doubt that the organization is becoming more influential but, with the US seeming to have unilaterally resolved Asia’s most urgent security concern in North Korea, perhaps American leadership cannot be said to have waned.

2 May
(The Economist) The genesis of the next crisis is probably lurking in corporate debt. Investors are getting less reward for the same amount of risk. Combine this with the declining liquidity of the bond market (because banks have withdrawn from the market-making business) and you have the recipe for the next crisis. It may not happen this year, or even next. But there are already ominous signs, writes our financial-markets columnist

23 March
Globalization’s Backlash Is Here, at Just the Wrong Time
(NYT) The world economy became more interconnected in the 1990s and 2000s, delivering immediate pain to rich countries, along with benefits that only now are starting to be more apparent. … the anti-globalization drive that is spreading across the Western world may be coming at exactly the wrong time — too late to do much to save the working-class jobs that were lost, but early enough to risk damaging the ability of rich nations to sell advanced goods and services to the rapidly expanding global middle class.
“Global manufacturing has already reconfigured itself. That change happened, and the horse is out of the barn. We don’t think globalization is over, but it has taken a new form.” … it’s not a form of globalization that endangers factory jobs, but one that could have big consequences in other areas — leading to more competition for technologically advanced white-collar jobs, while also creating enormous new opportunities for American and Western European firms. That, in turn, helps explain why much of the trans-Pacific Partnership, the trade deal that the Trump administration withdrew from, focused on intellectual property rights, data security and privacy.

1 March
The Bitcoin Landscape
In a decade, bitcoin has grown from an obscure proposal for a virtual currency to an entire ecosystem of companies and services. How does it all work?
(Politico March/April 2018) How does it all work? In the imaginary town shown here, the trains represent the “blockchain,” the encrypted record of transactions at the heart of this new economy. The huge “B” represents the miners, whose high-speed computers verify transactions and keep the shared system running. And around that, a host of services have sprung up—some virtual and some physical, some legitimate and some shady—like an Old West boomtown putting down roots.

27 January
Every One of the World’s Big Economies Is Now Growing
(NYT) A decade after the world descended into a devastating economic crisis, a key marker of revival has finally been achieved. Every major economy on earth is expanding at once, a synchronous wave of growth that is creating jobs, lifting fortunes and tempering fears of popular discontent.
No tidy, all-encompassing narrative explains how the world has finally escaped the global downturn. The United States has been propelled by government spending unleashed during the previous administration, plus a recent $1.5 trillion shot of tax cuts. Europe has finally felt the effects of cheap money pumped out by its central bank.
In general terms, improvement owes less to some newfound wellspring of wealth than the simple fact that many of the destructive forces that felled growth have finally exhausted their potency.
The long convalescence has yielded a global recovery that is far from blistering in pace, and geopolitical risks threaten its demise. Many economists are skeptical that the benefits of growth will reach beyond the educated, affluent, politically connected class that has captured most of the spoils in many countries and left behind working people whose wages have stagnated even as jobless rates have plunged.
And still the fact that every major swath of the globe is expanding is a source of optimism. There is no guarantee that this expansion will prove more equitable.

26 January
Blockchain’s Broken Promises
By Nouriel Roubini
Boosters of blockchain technology compare its early days to the early days of the Internet. But whereas the Internet quickly gave rise to email, the World Wide Web, and millions of commercial ventures, blockchain’s only application – cryptocurrencies such as Bitcoin – does not even fulfill its stated purpose.
(Project Syndicate) Clearly, Bitcoin and other cryptocurrencies represent the mother of all bubbles, which explains why every human being I met between Thanksgiving and Christmas of 2017 asked me if they should buy them. Scammers, swindlers, charlatans, and carnival barkers (all conflicted insiders) have tapped into clueless retail investors’ FOMO (“fear of missing out”), and taken them for a ride.
As for the underlying blockchain technology, there are still massive obstacles standing in its way, even if it has more potential than cryptocurrencies. Chief among them is that it lacks the kind of basic common and universal protocols that made the Internet universally accessible (TCP-IP, HTML, and so forth). More fundamentally, its promise of decentralized transactions with no intermediary authority amounts to an untested, Utopian pipedream. No wonder blockchain is ranked close to the peak of the hype cycle of technologies with inflated expectations.

January 2018
The Global Risks Report 2018
(WEF) The Global Risks Report 2018 is published at a time of encouraging headline global growth. Any breathing space this offers to leaders should not be squandered: the urgency of facing up to systemic challenges has intensified over the past year amid proliferating signs of uncertainty, instability and fragility.
This year’s report covers more risks than ever, but focuses in particular on four key areas: environmental degradation, cybersecurity breaches, economic strains and geopolitical tensions. And in a new series called “Future Shocks” the report cautions against complacency and highlights the need to prepare for sudden and dramatic disruptions.
The 2018 report also presents the results of our latest Global Risks Perception Survey, in which nearly 1,000 experts and decision-makers assess the likelihood and impact of 30 global risks over a 10-year horizon. Over this medium-term period, environmental and cyber risks predominate. However, the survey also highlights elevated levels of concern about risk trajectories in 2018, particularly in relation to geopolitical tensions. Link to Report

World Economic Outlook Update, January 2018
Brighter Prospects, Optimistic Markets, Challenges Ahead
(IMF) The current cyclical upswing provides an ideal opportunity for reforms. Shared priorities across all economies include implementing structural reforms to boost potential output and making growth more inclusive. In an environment of financial market optimism, ensuring financial resilience is imperative.
Risks to the global growth forecast appear broadly balanced in the near term, but remain skewed to the downside over the medium term. On the upside, the cyclical rebound could prove stronger in the near term as the pickup in activity and easier financial conditions reinforce each other. On the downside, rich asset valuations and very compressed term premiums raise the possibility of a financial market correction, which could dampen growth and confidence. A possible trigger is a faster-than-expected increase in advanced economy core inflation and interest rates as demand accelerates. If global sentiment remains strong and inflation muted, then financial conditions could remain loose into the medium term, leading to a buildup of financial vulnerabilities in advanced and emerging market economies alike. Inward-looking policies, geopolitical tensions, and political uncertainty in some countries also pose downside risks.
Two common policy objectives tie advanced, emerging, and developing economies together. First, the need to raise potential output growth—through structural reforms to lift productivity and, especially in advanced economies with aging populations, enhance labor force participation rates—while making sure that the gains from growth are shared widely. Second, the imperative to increase resilience, including through proactive financial regulation and, where needed, balance sheet repair and strengthening fiscal buffers. Action is particularly important in a low-interest-rate, low-volatility environment with potential for disruptive portfolio adjustments and capital flow reversals. The current cyclical upswing provides a unique opportunity for structural and governance reforms. Full Text (PDF)

Global Economic Prospects
Broad-Based Upturn, but for How Long?
Global Outlook Highlights
(World Bank) Global growth is expected to be sustained over the next couple of years—and even accelerate somewhat in emerging market and developing economies (EMDEs) thanks to a rebound in commodity exporters. Although near-term growth could surprise on the upside, the global outlook is still subject to substantial downside risks, including the possibility of financial stress, increased protectionism, and rising geopolitical tensions. With output gaps closing or closed in many countries, supporting aggregate demand with the use of cyclical policies is becoming less of a priority. Focus should now turn to the structural policies needed to boost longer-term productivity and living standards

26 January
IMF chief warns Trump’s tax cuts could destabilise global economy
Reforms may threaten recovery and lead to bigger US budget deficit, says Christine Lagarde
(The Guardian) Christine Lagarde singled out Trump’s tax reforms as one of three risks that could destabilise the current economic recovery, especially given the boom in stock markets in the past year.
“While the US tax reforms certainly will have positive effects in the short term, for the US and other countries around, it might also lead to serious risks,” Lagarde told the World Economic Forum in Davos.
“That has an impact on financial vulnerability, particularly given the high asset prices that we see around the world, and the easy financing that it still available,” she added.
Lagarde cautioned against people becoming too complacent about the pick-up in global growth reported by the IMF at the start of the WEF’s annual meeting. The IMF raised its forecasts for global expansion to 3.9% this year and in 2019, reporting that all major economies – the US, the eurozone and Japan – are doing better.

The World Bank’s new plan: Work with Wall Street
What can you do when your efforts are dwarfed by the funds pouring into developing countries through financial markets? For Jim Yong Kim, the president of the World Bank, the solution was to partner with investors.
But not everyone at the bank is comfortable with the approach. More from Landon Thomas Jr. of the NYT:
“This would be a cultural and organizational shift for the bank, which has not engaged with the private sector in a substantial way,” said Joel Hellman, a former top economist at the bank who is now dean of Georgetown’s School of Foreign Service. “World Bank staffers are used to talking to governments, and now they have to leverage the private sector? It is a different skill set, and flexibility is not the hallmark of development institutions.”
In other World Bank News: Its chief economist, Paul Romer, resigned, weeks after apologizing to Chile for the way it was treated in a report on countries’ competitiveness.

23 January
Globalization losing its lustre, Indian PM tells economic forum
New U.S. tariffs could backfire, German business leader warns at World Economic Forum meetings in Davos
Protectionism is gaining ground and globalization is losing its attractiveness, Indian Prime Minister Narendra Modi told the World Economic Forum on Tuesday.
Modi is leading a big government and business delegation at the summit in Davos, Switzerland, the first Indian prime minister do so in 21 years, aiming to showcase India as a fast-growing economic power and a potential driver of global growth.
India’s economy is expected to more than double and touch $5 trillion by 2025, Modi said. The last time an Indian prime minister attended the Davos talks, India’s GDP was “little more than $400 billion and now two decades later it’s about six times that amount.”
Commentary: For Trump, the great Davos face-off
(Reuters) Since its foundation in 1971, the World Economic Forum in Davos has been a byword for the growing consensus around an increasingly globalized world. Now, President Donald Trump is on his way to tell those who consider themselves the global elite that they have been wrong on just about everything.
For his audience back home, the U.S. president and those around him face a difficult balancing act. Trump knows his political base would like nothing more than to see him criticize the chief executives, celebrities and more liberal politicians gathered in the Alps.
At the same time, the administration has no shortage of things it would like to achieve. The summit offers unparalleled opportunities for backroom dealing and short and surreptitious meetings.
In an interview with the Wall Street Journal, Trump said his aim in going to Davos was to be a “cheerleader for the country.” Treasury Secretary Steven Mnuchin said the president would be heavily promoting his “America first” economic doctrine, a protectionist message that he also pushed heavily on his November trip to Asia.

22 January
Trump tax cuts will bring short-term global growth surge, says IMF
Davos report says changes will encourage investment, but that shot in the arm will only be short-lived
Davos attendees should beware the slowing of potential growth
(Brookings) The global economy is finally delivering solid growth and outpacing expectations after several years of disappointing performance, something
World Economic Forum attendees in Davos will surely celebrate. At the same time, they will be doubling down on their efforts to find solutions for making globalization more equitable

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