Global economy January 2023-

Five trends to watch in 2023 as the global economy tries a dangerous reboot
By Josh Lipsky
(Atlantic Council) If you’ve listened closely to financial leaders over the past few months, one theme comes across clearly: They just want to get back to where they were before the pandemic.
If we could just get back to 2 percent inflation, if we could rewind the clock to before Russian President Vladimir Putin invaded Ukraine, if we could only get China to open up and manufacture for the world, then things would be fine.
This desire for normalcy is misguided. Europe’s over-reliance on Russian energy was a vulnerability waiting to be exploited. Low inflation vexed the US Federal Reserve in 2019 because it signaled weakness in the labor market. As for China, if you think things were running smoothly in 2019, you probably forgot about the trade war.
As we enter 2023, here are five underappreciated trends to watch in geoeconomics. With each trend, policymakers can focus on a return to the status quo or build something different, and better, this year.
3 January
Trends That Will Define the Coming Years
They include deglobalization, stagflation and the bursting of the tech bubble.
By Antonia Colibasanu –
(Geopolitical Futures) In addition to the global economic slowdown, for the first time since the 1970s the world is simultaneously facing high inflation. The drivers of this bout of inflation include excessively loose monetary and fiscal policies that were kept in place for too long, the restructuring of global trade caused by the pandemic, and the sharp spike in the cost of energy, industrial metals, fertilizers and food as a result of Russia’s invasion of Ukraine. Angered by the unequal distribution of the gains of globalization, voters demanded more government support for workers and those left behind. However well-intentioned, such policies risk an inflationary spiral as wages and prices struggle to keep pace with one another. Rising protectionism also restricts trade and impedes the movement of capital, limiting improvements on the supply side.
What Comes After Globalization? A Conversation With Rana Foroohar
“all the things that made conventional neoliberal globalization possible—cheap capital, cheap energy, cheap labor—all those things are breaking apart.” (Foreign Affairs 29 December 2022)

22 March
The Economist: Central banks face an excruciating trade-off
Just now they have to choose between financial instability and high inflation. It wasn’t meant to be that way
he job of central bankers is to keep banks stable and inflation low. Today they face an enormous battle on both fronts. The inflation monster is still untamed, and the financial system looks precarious.
Stubbornly high inflation led the Federal Reserve to increase interest rates by a quarter of a percentage point on March 22nd, less than a week after the European Central Bank raised rates, too. The Fed acted days after three mid-sized American banks had collapsed and Credit Suisse, a grand old Swiss bank with more than SFr500bn ($545bn) in assets, suffered a wounding run that ended in a shotgun wedding with its rival, UBS.
Jeffrey Sachs: The Global Banking Crisis and World Economy
The banking crisis that hit Silicon Valley Bank (SVB) last week has spread. We recall with a shudder two recent financial contagions: the 1997 Asian Financial Crisis, which led to a deep Asian recession, and the 2008 Great Recession, which led to a global downturn. The new banking crisis hits a world economy already disrupted by pandemic, war, sanctions, geopolitical tensions, and climate shocks.
At the root of the current banking crisis is the tightening of monetary conditions by the Fed and the European Central Bank (ECB) after years of expansionary monetary policy. In recent years, both the Fed and ECB held interest rates near zero and flooded the economy with liquidity, especially in response to the pandemic. Easy money resulted in inflation in 2022, and both central banks are now tightening monetary policy and raising interest rates to staunch inflation.

20 March
Bloomberg: The market turmoil has faded after the run of banking woes in the US and in Europe. Even Swiss stocks have bounced back from the lows hit after the rescue of financial giant Credit Suisse.
But as the squall retreats for now, it leaves in its path a series of difficult questions for governments. None more so than the Swiss.
Most poignantly, the whole unravelling of one of Switzerland’s most vaunted financial institutions runs counter to the country’s image for probity and stability, a fundamental of its banking sector.
In truth, it’s been challenged on banking secrecy for years, most notably after the Lehman crisis of 2008 and during the Barack Obama administration’s confrontation with the authorities in Bern over the country’s status as a tax haven.
Swiss Look On in Dismay as Once-Mighty Credit Suisse Craters
UBS to buy rival bank in government-brokered rescue deal
Collapse is a stain on Switzerland’s reputation for stability

16 March
It’s not 2008: Keep calm as central banks carry on
The data show that there is much more money in the system right now than there was in 2008, and there’s a huge market available for banks that are trying to resolve problematic parts of their balance sheets. It’s night and day from the abyss that confronted bankers and regulators in the fall of 2008.
(Atlantic Council) For anyone who lived through the global financial crisis, the past week is feeling hauntingly familiar. A bank collapse followed by a weekend scramble in Washington to figure out a rescue plan. The public is told that this bank’s issues are unique, and the problem has been isolated. Soon after a bank in Europe is close to failing and needs its own government to save it.
But if you look past the surface, it’s clear that 2023 bears little similarity to 2008. The international financial system is much stronger today thanks to the lessons learned over the past decade—and that’s why this time policymakers stand a much better chance of containing the fallout.

9 March
The Inflation Picture Gets Murkier
Despite signs that inflation in most major economies has peaked and is trending back down, recent data releases have renewed fears that central banks will have to tighten monetary policy still further. In the face of maddeningly mixed signals, much will depend on a few key factors.
(Project Syndicate) …several new sources of uncertainty have presented themselves. First, the evidence for a sustained downward trend in inflation has weakened both in the US and Europe, leading central bankers to warn that they may need to resume rapid monetary-policy tightening. US Federal Reserve Chair Jerome Powell has just told Congress that, after having reduced the size of its last interest-rate increase from 50 basis points to 25, the Fed may need to return to larger hikes. Given US monetary policy’s central importance in the global economy, such changes are no small matter.

26 February
Bitter harvest for some in a global economy changed by Russia’s war
Richard Partington and Damian Carrington
(The Guardian) A year of conflict has brought soaring prices and faltering trade, but also a step change in the switch to renewables
Russia’s invasion of Ukraine sent shockwaves through the global economy and now, a year on from the start of the attack, the world is fundamentally changed.
Trends that were already in motion have accelerated, as the need to move away from fossil fuels to greener, renewable energy supplies became more urgent. Food prices have soared, increasing hunger in the developing world, and forcing governments, businesses and people to adapt to lasting shifts. …
International trade was already fragmenting before the Russian invasion, but the trend has been accelerated in the past year amid rising geopolitical tensions and concern over supply chain security. After the disruption caused by Covid, and with an eye on the conflict and shifting global relations, companies have pushed to reshore or “friendshore” production, bringing it closer to home.
Russia itself had relatively few export links with the rest of the world – it deals mainly in commodities – but has found itself further isolated as a result of sanctions. However, these were applied mainly by western countries; Russia’s trade with Asia, the Middle East, Africa and Latin America has grown. …
End of the oligarch?
Russia’s oligarchs lost almost $95bn last year as the result of sanctions: they have been shedding $330m a day ever since the Kremlin launched its invasion. Questions have been raised over whether the influence of the country’s politically connected business elite has been permanently diminished, after years of accumulating luxurious London properties, superyachts and football clubs.

23 February
Biden administration nominates Ajay Banga to lead World Bank
The White House is touting Banga’s experience with financial inclusion and climate change
(WaPo) The Biden administration has nominated Ajay Banga, a former Mastercard executive now serving as vice chairman at the private equity firm General Atlantic, to become the next president of the World Bank.
Banga is still subject to a months-long confirmation process before the bank’s board reaches its final decision.
The announcement puts an end to intense speculation about who would take over the bank, which has tremendous sway over international development projects and policy worldwide. The bank’s current leader, David Malpass, has been under fire recently over his views on climate change. He announced his resignation last week.
16 February
World Bank chief resigns after climate stance misstep
David Malpass was criticised when he dodged question about fossil fuels’ link to climate crisis

22 February
Nouriel Roubini: India is a big global player – but there are problems it must tackle
Make in India was intended to strengthen the economy’s tradable side by fostering the production of goods for export, not just for the Indian market. Instead, India is moving toward more protectionist import-substitution and domestic production subsidisation (with nationalistic overtones), both of which insulate domestic industries and conglomerates from global competition. Its tariff policies are preventing it from becoming more competitive in goods exports, and its resistance to joining regional trade agreements is hampering its full integration into global value and supply chains.

16 February
Debt in focus as G20 finance chiefs meet in India
(Reuters) – G20 finance and central bank chiefs meet in India next week at the first-year anniversary of Russia’s invasion of Ukraine to discuss rising debt troubles among developing countries, the regulation of cryptocurrencies and the global slowdown.
The Feb. 22-25 meeting is the first major event of India’s G20 presidency and will be followed by a March 1-2 meeting of foreign ministers in New Delhi.
The Economist writes: The global economy is still grappling with the effects of the war, with the West still trying to tamp down inflation as interest rates continue to climb. The rising costs of finance, energy and food have pushed some countries to the edge of bankruptcy. This will be in the news this week as finance ministers from members of the G20 gather in India, with the plight of heavily indebted countries high on the agenda. On this issue, as on so much else, America and China find themselves pulling in opposite directions. China is refusing to play by the old rules of international financial diplomacy. . Sri Lanka, in urgent need of a bail-out, and deeply in hock to China, may test the willingness of the West and the IMF to go it alone—i.e., to provide the money and restructure the debt without China’s taking part in the process.

15 February
Invisible Trillions review: global capitalism operates beyond the rule of law and threatens democracy
John J Stremlau, Honorary Professor of International Relations, University of the Witwatersrand
(The Conversation) Secrecy has become as important for corporations as transparent and taxable profits used to be, according to Raymond W. Baker in his new book Invisible Trillions: How Financial Secrecy Is Imperiling Capitalism and Democracy and the Way to Renew Our Broken System. Global capitalism, he argues, operates beyond the rule of law. This contributes to extreme inequality that threatens liberal democracy.
Deals in the financial secrecy system account for half of global economic operations. This is far beyond illicit transfers of funds through corporate under-pricing and overpricing of exports and imports, or the drug and other criminal networks 50 years ago. Tax havens, “shell companies”, anonymous trust accounts, fake foundations and new digitised money laundering technologies have proliferated. Add to that falsified trade. All of this is facilitated by international lawyers, accountants and financial strategists based mostly in rich countries.
The book’s timely contribution is how financial secrecy threatens both free enterprise and political freedoms.

10 January
World Bank walking tightrope as it mulls increased lending to poorest
Phillip Inman
Campaigners say bank should rush to rescue countries facing recession – but can it do so without resulting in mass debt write-offs?
(The Guardian) Ahead of its annual meeting in April, held with the International Monetary Fund, the World Bank is seeking support for proposals that include a deeper pool of capital to draw on and new lending tools.
This “evolution roadmap” is designed to give the bank more flexibility to meet a series of overlapping crises that the New York university economist Nouriel Roubini*, among others, has argued is the new normal.
Wars, famines and the climate emergency will continue to trigger food shortages and energy price spikes that fuel inflation. Interest rates, for so long at near zero, will remain above long-term trends, they say.
The Bank president, David Malpass, hopes to prevent countries that have made huge strides in the last 30 years towards food security and stable public debts from going backwards.
One of the biggest headwinds faced by developing world governments is the increase in debt costs. When most debts are denominated in dollars or euros, the aggressive rate rises by the US Federal Reserve and the European Central Bank matter.
*Nouriel Roubini: The Age of Megathreats
For four decades after World War II, climate change and job-displacing artificial intelligence were not on anyone’s mind, and terms like “deglobalization” and “trade war” had no purchase. But now we are entering a new era that will more closely resemble the tumultuous and dark decades between 1914 and 1945. (4 November 2022)

5 January
The Economist: One of our cover stories this week is about how China’s great reopening will shake the world. For nearly three years China has been closed: hardly anyone has entered or left it. From January 8th it will reopen its borders, thus scrapping the last remnant of Xi Jinping’s zero-covid policy. Because the government has failed to prepare properly by vaccinating the elderly, the coming months will see widespread infection and death within China. But eventually something resembling normality will return. The revival of commercial, intellectual and cultural contact with China should be welcomed. But its post-covid economic recovery will be hugely disruptive for the global economy, pushing up the price of oil, gas and other commodities, stoking inflation and forcing central banks to keep monetary policy tighter for longer.

4 January
The G20 and G Minor
To confront the looming global crisis, G20 countries must, first and foremost, coordinate macroeconomic policies.
Kaushik Basu
(Project Syndicate) Amid rising geopolitical tensions and economic uncertainty, the G20 can play a central role in preventing a much worse crisis by facilitating the coordination of fiscal and monetary policies. It could also advance a more inclusive international order by allowing smaller countries to make their voices heard.
In December, India began its year-long G20 presidency, taking over from Indonesia amid rising geopolitical tensions and economic uncertainty. Surging inflation has raised the specter of a global recession. Supply chains, made more efficient but also more vulnerable by globalization and the digital revolution, are crumbling under the weight of COVID-related disruptions and the war in Ukraine, both of which have revealed and deepened the fault lines of the international order.
… emerging and developing economies, particularly in Africa and the Pacific, often find themselves at the mercy of major powers, their prosperity contingent upon election outcomes in developed countries. This year, the G20 could take a giant step forward by enabling several smaller countries to participate in its deliberations and make their voices heard. We could call this proposed group G Minor. While the G20 represents the world’s largest economies, the G Minor would represent the needs of emerging and developing countries that lack the diplomatic and military clout required to protect their interests on their own. Forming such a group would be an admirable gesture of inclusion, enabling India to make its mark on the G20 and achieve a more just international order.