Emerging markets and the perfect storm (videos)
(A) OECD Economics Department Webinar: Policy Challenges for Emerging Market Economies (B) A Perfect Storm for the Global Economy? (C) Otaviano Canuto discusses the May Day marches in Latin America
Slowbalization, Newbalization, Not Deglobalization
One can expect slower globalization (“slowbalization”) and a greater degree of regionalization. The term “slowbalization”—slowing growth in cross-border flows—can indeed be applied to the trends for goods, capital, and people after the global financial crisis rather than deglobalization—or outright declines in cross-border flows and stocks. The increases in digital cross-border activity also strengthen the concept of "newbalization": the nature and scope of globalization is evolving in the coming years as flows may continue to slow in tangible areas, like the trade of goods, while speeding up in intangible areas, including trade in services and cross-border data flows. On the other hand, “the death of globalization was an exaggerated announcement”.
The Global Food Price Shock
The world food price index collected for the last 60 years by the United Nations Food and Agriculture Organization (FAO) hit its highest record in March, declining gently in April. Pandemic, war and death in Ukraine, and droughts in the last 2 years… Such a combination looks apocalyptical. Now it is adding global hunger risks, because of the food price crisis. The fiscal fragility inherited from the pandemic limits public programs to deal with issues in many developing countries.
Biggest Commodity Price Shock in Fifty Years
Commodity prices stabilized in April. However, the previous commodity price shock, intensifying trends that have been present since mid-2020, have already led to significantly higher price levels in 2022. The new jumps made the increase in energy prices in the last two years the biggest in the last fifty years, since the oil shock in 1973. The war in Ukraine and the shock of energy commodity prices have not been favorable to the energy transition, as seen in the race for coal.
Emerging economies, global inflation, and growth deceleration
The "World Economic Outlook" report released by the International Monetary Fund (IMF) on April 19 depicted a worsening in the global economic scenario for 2022: lower economic growth and higher inflation than the January projections. As the Director-General Kristalina Georgieva said in the previous week, the war in Ukraine represented a "substantial setback" for the global economic recovery. Emerging market and developing economies (EMDE) face a common set of external shocks: rising energy and food prices; tightening in global financial conditions caused by the prospect of sharper interest rate hikes and anticipation of "quantitative tightening"; and return of restrictions on mobility in China, on account of the Covid zero policy, leading to slumping in growth and weakening one of the primary growth drivers for the other EMDE. However, the impacts of those common shocks on EMDE have been heterogeneous.
Dollar dominance will remain
The heavy financial sanctions on Russia after the invasion of Ukraine sparked speculations that the weaponization of access to reserves in dollars, euros, pounds, and yen would spark a division in the international monetary order. There has been a reduction in the degree of "dollar dominance” with the dollar's share of central bank reserves falling since the beginning of the century. The relative dominance of the dollar appears to be declining but at a very gradual pace.
War in Ukraine – Global Economic Impacts
1. OTAVIANO CANUTO Global Impacts of War in Ukraine - a 3-min video summarizes the short-term impacts of Russia's invasion of Ukraine on the global economy 2. Podcast - War in Ukraine and Sanctions against Russia : an endless boxing match? 3. Commodity Markets Outlook, Urbanization & Commodity Demand In partnership with the World Bank
War in Ukraine and Risks of Stagflation
The war in Ukraine is bringing substantial financial, commodity price, and supply chain shocks to the global economy. Sanctions on Russia are already having a significant impact on its financial system and its economy. Price shocks will have a global impact. Energy and commodity prices—including wheat and other grains—have risen, intensifying inflationary pressures from supply chain disruptions and the recovery from the pandemic. The push toward relative deglobalization received from the pandemic will get stronger. One may expect an increasing weight of geopolitics in international payments and in the access to special commodities.
Sanctions against Russia resemble boxing matches
The economic sanctions against Russia announced last week by the United States and Europe following the military invasion of Ukraine are having a profound impact on the Russian economy while also having repercussions at home. As in a boxing match, the expectation is that blows to the opponent can knock them out, despite the exposure on the punching side.
Geopoliticized Industrial Policy Won’t Work
Supply shortages during the COVID-19 pandemic have set off a rush to reshore or nearshore production in the name of national security and resilience. But policymakers tasked with shaping new industrial policies should have no illusions that there are shortcuts to economic development.
Decarbonization and “Greenflation”
Accelerating the transition toward low or net-zero carbon emissions is necessary to keep global warming at theoretically safe levels. That will likely bring price shocks associated with rising metal prices, energy costs, and carbon taxes – what has been called “greenflation”. Greening the economy will also require public spending and redistributive policies.
Otaviano Canuto on global supply chain crisis
CGTN's Elaine Reyes speaks with Otaviano Canuto, a senior fellow in the global economy and development program at the Brookings Institution, about the current disruptions to the global supply chain, and how the fourth China International Import Expo seeks to address the crisis.
Supply Chain Disruptions and Bottlenecks Dampen the Global Economic Recovery
Scarcity of inputs and goods has been felt all over the world because of disruptions to global value chains since the beginning of the pandemic. Higher inflation has been a global phenomenon, even if with different intensities and multiple determinants. A mismatch between demand and supply can also be found in the energy price shocks. The running of supply chains in the U.S. has also been affected by an unexpected shrinkage in the workforce because of acceleration in retirements caused by the pandemic. The Fed's ‘wait-and-see attitude’—moving on to the tapering this year and likely small rises at the end of next year—is opposed by those who think the Fed is already behind.
Permanent Output Losses From the Pandemic
Divergent recoveries are leaving “lasting imprints”, with emerging and developing economies suffering deeper medium-term damage than advanced countries, on average. Most countries are now forecast to have lower GDP in 2024 than projected in January 2020 before the pandemic. This is different from crises associated with industrial or financial cycles common in history because, in those cases, in general, some period of above normal or trend growth will have occurred previously. In the pandemic there has been only the loss side.
The Road to Decarbonization
It will be necessary to accelerate the pace of global containment of carbon emissions if the expected increases in global average temperatures are to be kept below 2 or 1.5 degrees Celsius, with correspondingly less-dramatic climatic consequences. The transition to zero emissions will involve three simultaneous economic processes: change in the relative prices of goods and services, with prices starting to reflect the intensity of emissions of carbon; labor relocation; and asset value scrapping. The socioeconomic return from decarbonization must include preventing heatwaves, floods, hurricanes, droughts, floods, and storms like those of this year from becoming even more intense and frequent, the cost of which would involve even higher GDP losses for nations.