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Research Says Recession May Help The Creative Economy Prosper

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Recent years have been tough for the creative industries. First, the financial crash that started in 2007 took its toll, and then, the global pandemic of 2020 led many companies to shut their doors permanently. Now, the sector is facing another crisis: a potential global recession. What’s a leader to do?

The current economic climate—on both sides of the Atlantic—is uncertain, with many industries reeling. In the UK, inflation has risen to 10%, the highest level in several years, while real wages are falling. The Pound has slumped against the US dollar, making imported goods more expensive, and so has the Euro, which is down 14% year-to-date (YTD). In the US, meanwhile, the stock market has been volatile, with trade tensions with China weighing on investor confidence. Since March, the Federal Reserve has raised interest rates five times, including three consecutive 75-basis-point rate hikes in June, July and September. The Fed’s actions have been well-received by the markets, with stocks surging to new highs. But some argue that the Fed is behind the curve on inflation and that higher interest rates will only further damper economic growth. The International Monetary Fund (IMF) has downgraded its forecast for world economic growth by 0.4% to 3.2%. But the IMF is not alone in its assessment: the OECD has also reduced its growth outlook.

Entrepreneurial leader Marc Bernegger explained in an interview, “The rise of interest rates, inflation and commodity prices invariably indicate recession, and these are undoubtedly taking place right now irrespective of national borders.” However, although he believes the situation looks bleak, there’s hope for the creative economy.

Firstly, in tough fiscal times, consumers flock to entertainment and escapism, which means there will always be demand for innovative products and services. Secondly, many companies are turning to digital platforms to reach their audiences, providing a significant opportunity for the creative economy. Finally, even in these turbulent times, creativity may, in fact, spike creativity, according to the theory of frugal innovation—the process of developing products and services that are simple and affordable yet still offer value to consumers.

That said, frugal innovation is not just about developing new products and services but also about finding new ways of doing things. For example, consider the rise of the sharing economy—predicated on sharing resources instead of owning them—which helped Airbnb, Uber and WeWork proliferate. Moreover, according to an extensive research study sponsored by the British Council, frugal innovation is a valuable tool for leaders of all sectors looking to navigate uncertainty. This consensus emerges from the Creative Spark: Higher Education Enterprise Program—a five-year initiative which began in 2018—to develop entrepreneurship across seven countries: Ukraine, Central Asia (Kazakhstan, Uzbekistan, Kyrgyzstan) and South Caucasus (Azerbaijan, Armenia, Georgia). The program engaged with more than 1,200 individuals across the creative industries and found that frugal innovation is a crucial driver of creativity and entrepreneurship. So, although the current economic climate is uncertain, there are still opportunities for leaders to capitalize on.

The Centre for Euro-Asian Studies (CEAS)—a prominent contributor to the British Council program—researched how frugal innovation thrives within the sector and found that economic uncertainty fuels creators. This is because frugal innovation is often born from necessity, as creatives seek to stretch their resources further—leading to remarkable creativity. For example, during the 2008 economic crisis, fashion designers in Spain created entire collections from recycled materials, while in Greece, advertising agencies began offering pro-bono services to small businesses—subsequently dubbed “crisis aesthetic.”

CEAS, which garners a global reputation for studying Euro-Asian countries, considered Kazakhstan’s Entrepreneurial Ecosystem (EE) and EE stakeholders as an instrument to enhance the country’s creative industries and entrepreneurship policy. The results—highly generalizable to other nations—suggest frugal innovation can be fostered by implementing a “growth-oriented” enterprise policy that unites entrepreneurial leaders in clusters based on specialization. Moreover, the policy should focus on providing “soft” infrastructure such as co-working spaces, accelerators and incubators, which can serve as important platforms for promoting knowledge spillovers and social capital accumulation: essential ingredients for frugal innovation because they provide opportunities to interact, network, and exchange knowledge.

Both ingredients can be observed at The Kazakh-British Centre for Competitiveness (KBCC), an international think tank coordinated by the British Council and JSC Science Fund, which emerged from CEAS’s research partnership with the Kazakh-British Technical University’s Business School and IT Faculty.

KBCC is clear: Governments have a role in promoting frugal innovation: an indicative process of trial and error, experimentation and iteration. In other words, it’s a creative process. And that is why the current climate of uncertainty presents an opportunity for the creative industries to thrive. “What government can do is create an environment conducive to creativity and entrepreneurship,” said Richard Meehan in an interview. His assertion is supported by Paul Glover, who added, “This means investing in education, research and development and promoting collaboration between the public and private sectors.”

Meehan and Glover—two members of the Rich Meehan Trio—believe while the current situation may seem bleak, it could be a boon for the creative industries—and other sectors that adopt similar principles. So what does this all mean for leaders?

First and foremost, it’s essential to understand that consumers’ needs and wants will change during a recession, asserted Yelena Kalyuzhnova, Vice Chair of the British Institute of Energy Economics Council, in an interview. Kalyuzhnova, who also leads CEAS, proposes leaders be prepared to pivot their innovation strategy accordingly—for example, adjusting marketing approaches to focus on value rather than luxury.

Secondly, don’t be afraid to experiment—now is the time to fail fast. “Frugal innovation is about doing more with less, so think outside the box and explore alternative approaches,” said Kalyuzhnova. For example, consider the recent rise in popularity of independent musicians, such as Meehan and Glover, using technology to bypass traditional channels, releasing their music faster than their major label counterparts and therefore retaining more creative control over their work. Contemplate how agile principles like these could help disseminate directions more quickly and effectively—using storyboards can help teams communicate ideas more clearly and concisely, and adopting a tool like Jira to help manage and track tasks more efficiently.

Thirdly, embrace collaboration—because two heads are better than one, and three heads are even better. “When resources are tight, it’s important to pool your talents and work together towards a common goal,” said Kalyuzhnova, who yesterday met Lúcio Vinhas de Souza, an advisor at the European External Action Service in Brussels, to discuss the implications of CEAS’s research on public policy. Vinhas de Souza, who until recently, led the economics department of the European Political Strategy Centre (EPSC)—the internal think tank of the European Commission President, said the pair had “useful discussions about the creative industries study Kalyuzhnova managed,” in an email.

Finally, don’t forget the power of storytelling. In these troubled times, people seek narratives that offer hope and inspiration. The best stories can transcend borders and connect us on a deeper level. They remind us of our shared humanity and inspire us to dream. So don’t be afraid to tell your own frugal innovation story—it just might be the thing that inspires someone else to change the world.

In summary, while a recession is challenging for most industries, it could help the creative economy break free from the shackles of the past and embrace a new era of growth and prosperity—because recessions tend to lead to periods of innovation. Moreover, leaders are often more open to new ideas in times of economic hardship because they are more willing to take risks. And, after all, risk-taking is essential when it comes to the creative industries. In fact, many of the world’s most innovative companies—including Apple, Google and Tesla—have already embraced frugal innovation in some regard recently.

Ultimately, frugal innovation is about doing more with less, which we can all benefit from, regardless of our circumstances, and market served. So, what are you waiting for? Now is the time to get creative and embrace frugal innovation.

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Here is Trump economy: Slower growth, higher prices and a bigger national debt

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If Donald Trump is re-elected president of the United States in November, Americans can expect higher inflation, slower economic growth and a larger national debt, according to economists.

Trump’s economic agenda for a second term in office includes raising tariffs on imports, cutting taxes and deporting millions of undocumented migrants.

“Inflation will be the main impact” of a second Trump presidency, Bernard Yaros, lead US economist at Oxford Economics, told Al Jazeera.

“That’s ultimately the biggest risk. If Trump is president, tariffs are going up for sure. The question is how high do they go and how widespread are they,” Yaros said.

Trump has proposed imposing a 10 percent across-the-board tariff on all imported goods and levies of 60 percent or higher on Chinese imports.

During Trump’s first term in office from 2017 to 2021, his administration introduced tariff increases that at their peak affected about 10 percent of imports, mostly goods from China, Moody’s Analytics said in a report released in June.

Those levies nonetheless inflicted “measurable economic damage”, particularly to the agriculture, manufacturing and transportation sectors, according to the report.

“A tariff increase covering nearly all goods imports, as Trump recently proposed, goes far beyond any previous action,” Moody’s Analytics said in its report.

Businesses typically pass higher tariffs on to their customers, raising prices for consumers. They could also affect businesses’ decisions about how and where to invest.

“There are three main tenets of Trump’s campaign, and they all point in the same inflationary direction,” Matt Colyar, assistant director at Moody’s Analytics, told Al Jazeera.

“We didn’t even think of including retaliatory tariffs in our modelling because who knows how widespread and what form the tit-for-tat model could involve,” Colyar added.

‘Recession becomes a serious threat’

When the US opened its borders after the COVID-19 pandemic, the inflow of immigrants helped to ease labour shortages in a range of industries such as construction, manufacturing, leisure and hospitality.

The recovery of the labour market in turn helped to bring down inflation from its mid-2022 peak of 9.1 percent.

Trump has not only proposed the mass deportation of 15 million to 20 million undocumented migrants but also restricting the inflow of visa-holding migrant workers too.

That, along with a wave of retiring Baby Boomers – an estimated 10,000 of whom are exiting the workforce every day – would put pressure on wages as it did during the pandemic, a trend that only recently started to ease.

“We can assume he will throw enough sand into the gears of the immigration process so you have meaningfully less immigration, which is inflationary,” Yaros said.

Since labour costs and inflation are two important measures that the US Federal Reserve weighs when setting its benchmark interest rate, the central bank could announce further rate hikes, or at least wait longer to cut rates.

That would make recession a “serious threat once again”, according to Moody’s.

Adding to those inflationary concerns are Trump’s proposals to extend his 2017 tax cuts and further lower the corporate tax rate from 21 percent to 20 percent.

While Trump’s proposed tariff hikes would offset some lost revenue, they would not make up the shortfall entirely.

According to Moody’s, the US government would generate $1.7 trillion in revenue from Trump’s tariffs while his tax cuts would cost $3.4 trillion.

Yaros said government spending is also likely to rise as Republicans seek bigger defence budgets and Democrats push for greater social expenditures, further stoking inflation.

If President Joe Biden is re-elected, economists expect no philosophical change in his approach to import taxes. They think he will continue to use targeted tariff increases, much like the recently announced 100 percent tariffs on Chinese electric vehicles and solar panels, to help US companies compete with government-supported Chinese firms.

With Trump’s tax cuts set to expire in 2025, a second Biden term would see some of those cuts extended, but not all, Colyar said. Primarily, the tax cuts to higher earners like those making more than $400,000 a year would expire.

Although Biden has said he would hike corporate taxes from 21 percent to 28 percent, given the divided Congress, it is unlikely he would be able to push that through.

The contrasting economic visions of the two presidential candidates have created unwelcome uncertainty for businesses, Colyar said.

“Firms and investors are having a hard time staying on top of [their plans] given the two different ways the US elections could go,” Colyar said.

“In my entire tenure, geopolitical risk has never been such an important consideration as it is today,” he added.

 

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China Stainless Steel Mogul Fights to Avoid a Second Collapse

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Chinese metal tycoon Dai Guofang’s first steel empire was brought down by a government campaign to rein in market exuberance, tax evasion accusations and a spell behind bars. Two decades on, he’s once again fighting for survival.

A one-time scrap-metal collector, he built and rebuilt a fortune as China boomed. Now with the economy cooling, Dai faces a debt crisis that threatens the future of one of the world’s top stainless steel producers, Jiangsu Delong Nickel Industry Co., along with plants held by his wife and son. Its demise would send ripples through the country’s vast manufacturing sector and the embattled global nickel market.

 

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Why Trump’s re-election could hit Europe’s economy by at least €150 billion

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A Trump victory could trigger a 1% GDP hit to the eurozone economy, with Germany, Italy, and Finland most affected. Renewed NATO demands and potential cessation of US aid to Ukraine could further strain Europe.

The potential re-election of Donald Trump as US President poses a significant threat to the eurozone economy, with economists warning of a possible €150 billion hit, equivalent to about 1% of the region’s gross domestic product. This impact stems from anticipated negative trade repercussions and increased defence expenditures.

The recent attack in Butler, Pennsylvania, where former President Trump sustained an ear injury, has boosted his re-election odds. Prediction markets now place Trump’s chances of winning at 71%, a significant rise from earlier figures, while his opponent, Joe Biden, has experienced a sharp decline, with his chances dropping to 18% from a peak of 45% just two months ago.

Rising trade uncertainty and economic impact from tariffs

Economists James Moberly and Sven Jari Stehn from Goldman Sachs have raised alarms over the looming uncertainty in global trade policies, drawing parallels to the volatility experienced in 2018 and 2019. They argue that Trump’s aggressive trade stance could reignite these uncertainties.

“Trump has pledged to impose an across-the-board 10% tariff on all US imports including from Europe,” Goldman Sachs outlined in a recent note.

The economists predict that the surge in trade policy uncertainty, which previously reduced Euro area industrial production by 2% in 2018-19, could now result in a 1% decline in Euro area gross domestic product.

Germany to bear the brunt, followed by Italy

Germany, Europe’s industrial powerhouse, is expected to bear the brunt of this impact.

“We estimate that the negative effects of trade policy uncertainty are larger in Germany than elsewhere in the Euro area, reflecting its greater openness and reliance on industrial activity,” Goldman Sachs explained.

The report highlighted that Germany’s industrial sector is more vulnerable to trade disruptions compared to other major Eurozone economies such as France.

After Germany, Italy and Finland are projected to be the second and third most affected countries respectively, due to the relatively higher weight of manufacturing activity in their economies.

According to a Eurostat study published in February 2024, Germany (€157.7 billion), Italy (€67.3 billion), and Ireland (€51.6 billion) were the three largest European Union exporters to the United States in 2023.

Germany also maintained the largest trade surplus (€85.8 billion), followed by Italy (€42.1 billion).

Defence, security pressures and financial condition shifts

A Trump victory would also be likely to bring renewed defence and security pressures to Europe. Trump has consistently pushed for NATO members to meet their 2% GDP defence spending commitments. Currently, EU members spend about 1.75% of GDP on defence, necessitating an increase of 0.25% to meet the target.

Moreover, Trump has indicated that he might cease US military aid to Ukraine, compelling European nations to step in. The US currently allocates approximately €40bn annually (or 0.25% of EU GDP) for Ukrainian support. Consequently, meeting NATO’s 2% GDP defence spending requirement and offsetting the potential reduction in US military aid could cost the EU an additional 0.5% of GDP per year.

Additional economic shocks from Trump’s potential re-election include heightened US foreign demand due to tax cuts and the risk of tighter financial conditions driven by a stronger dollar.

However, Goldman Sachs believes that the benefits from a looser US fiscal policy would be marginal for the European economy, with by a mere 0.1% boost in economic activity.

“A Trump victory in the November election would likely come with significant financial market shifts,” Goldman Sachs wrote.

Reflecting on the aftermath of the 2016 election, long-term yields surged, equity prices soared, and the dollar appreciated significantly. Despite these movements, the Euro area Financial Conditions Index (FCI) only experienced a slight tightening, as a weaker euro counterbalanced higher interest rates and wider sovereign spreads.

In conclusion, Trump’s potential re-election could have far-reaching economic implications for Europe, exacerbating trade uncertainties and imposing new financial and defence burdens on the continent.

 

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