What happens when $2 trillion is sucked out of the global economy? It may not be pretty
CNN
23-05-19 15:45
Central banks face a difficult challenge as they shrink their balance sheets and unwind quantitative easing programs, which may destabilize the financial system. Central banks came to the rescue of the global economy twice over the past 15 years during the 2008 financial crisis and again during the COVID-19 pandemic. To restore confidence in the economy and stimulate it, central banks engaged in quantitative easing (QE) and purchased government bonds and assets. This created an era of "easy money" and gave policymakers newfound power. But now that inflation has reached its highest point in a generation, central banks must reduce the size of their bloated balance sheets, which currently holds tens of trillions of dollars worth of government bonds and assets. This measure, known as "quantitative tightening," will remove around $2tn of liquidity from the financial system over the next two years. The liquidity drain could amplify risks on the banking system and markets. The major fear is that when liquidity is withdrawn and banks try to adjust to the reduced amount of money in circulation, the demand for liquidity will ratchet up, making it harder to wean the financial system off it.
Indian Prime Minister Narendra Modi has been invited to attend the G7 summit from May 19 to May 21 as an "invited country". His invitation highlights the attraction of the Indian economy as all G7 countries face slow growth. According to the IMF, India is expected to grow at 5.9% in 2023-2024 and is the quickest growing economy in Asia, making India an attractive place to invest due to factors including market potential, business reforms and a favourable industrial climate. India's plentiful and skilled workforce also makes it a destination of interest, given the greatest challenges facing modern day businesses is to attract and maintain talent.
UK Chancellor Rishi Sunak has spoken out against pessimistic reports over the country’s future prospects. Sunak defended the Conservative government, stating bold action taken to prevent recession and protect small businesses led to one of the biggest upward revisions for the UK economy by the Bank of England and the strongest surge of confidence amongst finance directors since 2020. Sunak also made direct reference to post-Brexit growth rates and said the country’s plans to boost its economy and trade with other nations had led to significant inward investment.
Ghana has received the first $600m tranche of a $3bn, three-year extended credit facility to help bring down inflation and provide budget support. The International Monetary Fund (IMF) approved the loan on Wednesday in a bid to help lift Ghana from its worst economic crisis in a generation.
Greek politics has traditionally centred around grandiose election promises that can't be kept, leading to a cycle of disillusionment when such promises aren't fulfilled, according to Deutsche Welle. Georgios Papandreou, who served as prime minister until 2011, once said that making a pledge doesn't hurt, while keeping it might. Many of those who follow have lived up to his meme, including Alexis Tsipras who lead the Syriza movement which won the 2015 election promising to abolish austerity, but abandoned the pledge after being elected.
The southern Chinese economic hub of the Greater Bay Area, which includes Hong Kong, Macau and nine mainland cities in Guangdong province, has a combined gross domestic product (GDP) that is now comparable to Italy’s at close to $2tn. The GDP of the area climbed 25% from $1.65tn in 2019, according to Financial Secretary Paul Chan Mo-po. If considered as a standalone economy, the Greater Bay Area would have been the world’s ninth-largest economy in 2021, just below Italy, according to the IMF.
Japan and Germany are pushing for a reform of global institutions including the United Nations Security Council to be more inclusive of emerging countries referred to as the "Global South." Outreach to these low and middle-income countries has been a focus at this year's Group of Seven (G7) summit in Hiroshima amid concerns over China's influence over these countries. China has lent hundreds of billions of dollars to build infrastructure in developing countries, but some commentators believe that China's lending has left developing countries "trapped in debt." The G7 countries are struggling to stay relevant and credible amid China's growing footprint in the developing world and their declining economic clout.
The UK is imposing the largest tax hike since the 1970s with the government's decision to freeze personal tax thresholds for the next five years, thereby dragging millions of middle-income earners into the 40% tax bracket. Sunak and Hunt have locked the starting and higher-rate thresholds at £12,570 and £50,270 respectively until 2028. As such, the share of adults paying tax at 40% will soar to 14% over the next five years, according to an Institute of Fiscal Studies report released last week. The extended threshold freeze will raise £26bn a year, equivalent to hiking the basic rate of income tax from 20p to 24p in the pound. However, this extended threshold freeze will severely hinder economic growth, and few policies are more likely to discourage investment than hiking corporation tax from 19% to 25%, which will cost the Treasury money, not raise revenue.
Detente seems to be in the air between China and America according to an opinion piece in Bloomberg. It describes several significant breakthroughs in meetings between Chinese and American officials, a far cry from the frosty silence of recent times. Perhaps most poignantly, President Joe Biden’s National Security Adviser Jake Sullivan recently gave a speech at The Brookings Institute where he appeared to be intent on making Cold War II less chilly. Moreover, the opinion piece argues that the Chinese economy may not live up to its great expectations, showing some signs of headwinds with China’s dire demographic prospects and over-leveraged and depressed real estate sector.
Greece is holding its first parliamentary election since its economy ceased to be subject to strict supervision and control by international lenders following its financial crisis. Two main contenders, conservative Prime Minister Kyriakos Mitsotakis and left-wing Syriza party leader, Alexis Tsipras, are hoping to lead a coalition government with smaller parties. Greece has been boosted by high growth and a steep drop in unemployment since the last election in 2019, but household incomes are still struggling. Tsipras has campaigned on the government’s handling of a railway disaster and a surveillance scandal targeting political and media figures.
The Tunisian government's attempts to label the recent attack on the Ghriba synagogue as a criminal attack on tourism rather than an act ofanti-semitism on Tunisia's vulnerable Jewish community has been apparent. The reason for their reluctance is the complicated ramifications that follow acknowledgingthe killing of Jewish people as a terrorist attack. It would raise questions about Islamophobia and anti-Semitism within the police, the government and society. With no specific motives identified, investigations have been launched in France, as two of the victims held French nationality. Recognizing the attack as anti-semitic would taint Tunisia’s tourism industry, as safety is a significant feature for sun and sand tourists. The attack on Tunisia has the potential to effect tourism, which was set to account for 7% of Tunisia’s GDP this year, doubling to 14% after factoring in its associated industries. Tunisia is hoping that tourism will remain unscathed to help its struggling economy.
The Impact of Political Instability on Pakistan’s Internal Security
Diplomat
23-05-22 04:25
Terrorist groups such as Tehreek-e-Taliban Pakistan (TTP) and Baloch separatists are capitalising on Pakistan's current political tensions between former PM Imran Khan and the army chief Gen. Asim Munir to motivate their fighters. The leadership of these groups will seek to show to their rank-and-file members that concerted militant campaigns can push them closer to their goals. The police have been the main target of TTP’s attacks in Khyber Pakhtunkhwa but the current political polarisation is also undermining the security forces’ efforts to forge a national consensus in fighting terrorist groups and get political ownership of counter-terrorism campaigns.
Leaders from eight countries not part of the Group of Seven (G7), including India, Australia, Brazil and South Korea, have visited Hiroshima's peace museum and memorial near the site of the world’s first atomic bombing, following a similar visit by the leaders of the G7 countries on Friday. Indian Prime Minister Narendra Modi is the first leader of India, which possesses nuclear weapons, to visit Hiroshima since India tested a nuclear bomb in 1974. India has continued to increase its stockpile of nuclear warheads and is one of just four UN members not to have signed the 1970 Treaty on the Non-Proliferation of Nuclear Weapons. The visits come as the Japanese host of the three-day event wishes to make a “world without nuclear weapons” a key theme.
While investment in India's commercial property sector is still a fraction of that in other Asian markets, economic reforms mean the country's real estate industry is undergoing a "once-in-a-generation shift and opportunity for companies and investors," writes Nicholas Spiro in the Financial Times. India has a national digital infrastructure underpinned by a biometric identity scheme, a single goods and services tax, and a regulatory regime to encourage real estate investment trusts, among other changes. Furthermore, India is proving to buck global real estate trends; for example, Indian office occupancy rates are higher because of the physical presence needed for tech services employees to do their jobs.
Economists Daron Acemoglu and Simon Johnson argue in their book "Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity" that powerful elites are using, and intend to further use, artificial intelligence (AI) to enrich themselves while controlling the populace. While former gains have usually generated benefits for wider society, AI is different as it is expected to enable its users to simultaneously manipulate people and take their jobs, the economists said. They suggest a raft of remedies, including taxation of internet giants, revocation of some patent laws and statutory interference, in an effort to counteract these trends.
Melanie Mitchell, a computer science professor at Portland State University, described the book as riveting and eye-opening. Co-author Johnson is a former chief economist of the International Monetary Fund and Acemoglu is the co-author, with James Robinson, of the book “Why Nations Fail: The Origins of Power, Prosperity, and Poverty”. In their new book, the authors argue that digital revolution has been appropriated by a group of self-serving elites, creating an oligarchy of technology companies that use machines and algorithms to replace workers. They believe that “machine intelligence” can be shifted toward “machine usefulness” through public policy, which they hope will be influenced by public opinion and a revitalised democracy.
The book details how, throughout history, improvements to productivity have frequently led to the enrichment of powerful landowners or industrialists, while leaving ordinary people worse off. While change is often driven by challengers, they inevitably become co-opted by the status quo, the authors argue. Countervailing forces such as electoral competition, trade unions, politicians and reforming intellectuals can redirect technology towards creating shared gains, the book also states.
