Economy
The world desperately needs a fairer economy – here’s how we can make that happen
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The Covid-19 pandemic derailed economies everywhere, and in most developing countries incomes remain well below pre-pandemic levels. Inflation, made worse by the war in Ukraine, is particularly painful for low-income and vulnerable countries, where essentials like food and energy dominate household budgets. Higher interest rates are exacerbating debt distress across much of the developing world, squeezing public and private investment and paring back growth. To compound this, the climate crisis is hitting the very countries that contribute least to the problem, and which have the most limited means to cope.
Already, we are seeing the reversal of hard-won development gains. The World Bank estimates that the pandemic and the war in Ukraine have pushed up to 95 million more people into extreme poverty. The World Food Programme projects that almost 350 million people may be food insecure in 2023, more than double the number in 2020. In the wake of the pandemic, unemployment is higher, gender gaps are wider and the share of young people with neither jobs nor sufficient education has risen, according to the International Labour Organization.
None of this is inevitable. If we take the global implementation of the United Nations sustainable development agenda as a barometer of progress, it is true we are on the verge of failing – particularly for countries with inherent vulnerabilities. But governments, the private sector and civil society can make the decisions today that lay a foundation for sustainable development for generations to come. The World Bank and IMF meetings under way in Washington DC this week provide an opportunity to bring these important issues to the table.
International trade has a critical role to play in creating the better jobs, value addition and greater resilience that countries are seeking. We know that over the past 40 years, global economic integration has helped lift more than 1 billion people out of poverty. But even before the pandemic, it had become clear that many people in poor countries had not received a fair share of the gains from globalisation. Neither have many poor people in richer countries.
The weaknesses exposed in global supply chains by the war in Ukraine and the pandemic should be treated as an opportunity to reimagine globalisation, and assist countries and communities left behind during recent decades to use trade as a means to meet their sustainable development aspirations.
At the crux of this reimagined globalisation is the need to bring many more countries into what would become deeper, de-concentrated networks for producing, which would help provide marginalised countries and communities with access to new and existing value chains for both goods and services.
Companies have already been moving to add suppliers in places such as south-east Asia, India and Mexico, rather than just maintain a presence in one market, whether to save on costs or to manage risks. Fast-growing demand for services delivered over the internet is creating opportunities around the world. Extending these realignments to encompass smaller and more vulnerable countries would enable them to use international markets, ideas and capital to create better, more productive jobs.
In addition, drawing more small- and women-owned businesses into these production networks would deliver manifold socioeconomic benefits. Beyond the gains of development and inclusion, more diversified supply chains would also be more resilient to shocks, like extreme weather events or disease outbreaks.
Open and predictable markets are a prerequisite for this re-globalisation process. But they are not sufficient. Access to finance on prolonged and low-cost terms is an indispensable part of building a more sustainable, more inclusive global economy. The Bridgetown Initiative put forward by the government of Barbados calls for a reassessment of the current global financial architecture to drive multilateral and private sector financial resources towards climate mitigation and resilience. Following through on this initiative could play an important role in addressing the climate finance needs of developing countries and indeed the financing of the sustainable development goals.
A strong and effective trading system would amplify the impact of necessary action on debt reform and green investment: exports earn foreign exchange, and access to larger markets increases potential returns on investment.
Equally, the development of a just industrial strategy is critically important as countries work to reach net zero. Promoting innovation and working with developing and least-developed countries to access new technologies and ideas are necessary parts of the equation. This, together with broadly open export markets, increased direct investment and greater access to affordable capital will improve chances for the global south to produce and buy the goods needed to transition to a green economy.
Every part of this agenda is a tall order, all the more so at a time of rising geopolitical tensions. But as governments demonstrated by striking several multilateral agreements at the WTO ministerial conference last June, cooperation on trade is still possible. These efforts must continue so that the multilateral trading system helps all economies seize the opportunities available to them, and cope with the vulnerabilities and challenges. Working together, we can use trade to build a fairer, more just and more resilient economic future.
- Mia Amor Mottley, SC, MP is prime minister of Barbados. Dr Ngozi Okonjo-Iweala is director-general of the World Trade Organization
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China’s post-Covid reopening was supposed to be the stimulant that the world needed. But after an early burst of activity, growth in the world’s second largest economy appears to be stalling.
Disillusioned by the deteriorating economic outlook, young people are flooding to Buddhist and Taoist temples to pray for divine intervention in securing jobs, getting into good schools or becoming rich overnight.
Data released this week showed Chinese exports fell 7.5% in May from a year ago, much more than expected, as global demand waned. Factory activity contracted again last month, and youth unemployment stands at a record high.
Economic uncertainty has driven temple visits and tourism to new heights, according to analysts and travel websites.
“No school-going, no hard-working, only incense-burning” has been a popular hashtag on social media since March, referring to a growing trend among young people in China who escape a pressure-cooker society by going to temples to pray for luck.
“Incense-burning youth” has become the number one catchphrase in China’s tourism industry this year, according to a survey jointly conducted in April by Qunar.com, a travel website, and Xiaohongshu, an Instagram-like app, which looked at the top travel trends.
The jobless rate for people between 16 and 24 years old reached a record 20.4% in April, according to official statistics.
The youth unemployment rate could get even worse as a record 11.6 million college students enter the already tough job market this summer, as the education ministry estimated earlier this year.
Different temples tend to attract different types of worshippers. The Yonghe Temple in Beijing, also known as the Lama Temple, which caters to the Tibetan Buddhism faith, is a popular site for those looking for career or financial success.
It recorded the biggest increase in visitors of any temple in the country in March and early April, up 530% from the same period last year, according to Qunar.
Lots of incense burning
China is officially an atheist nation, but it recognizes five faiths: Buddhism, Taoism, Protestantism, Catholicism and Islam. The first two religions are an essential part of Chinese culture, with tens of thousands of temples and monasteries across the country.
Temple visits have surged this year more than fourfold from a year ago, according to recent data from Qunar and Trip.com, another travel site. About half of the visitors are people in their 20s and 30s, according to the sites.
“Under pressure about school, jobs, marriage and relationships, more and more young people are turning to traditional culture, such as temple prayer and blessings, to relieve stress,” said Yang Yan, an analyst with Chinese brokerage firm Nanjing Securities.
Social media has also fueled the boom in temple tourism, as young people like to share their experiences on social networks, she added.
Emei and Jiuhua are two of China’s famous “four sacred mountains of Buddhism,” home to the country’s largest Buddhist temples and cultural heritage sites.
Emei Mountain in southwestern Sichuan province received 2.48 million visitors between January and May, up 53% from the same period in 2019, before any pandemic restrictions were imposed.
Emei Shan Tourism, which provides travel services around the mountain, has enjoyed soaring sales, posting a record $9.8 million in net profit in the first quarter, up 262% from the same period in 2019.
Its stock surged 44% over the past 10 trading sessions, becoming one of the best performers on Chinese stock markets during the period.
Anhui Jiuhuashan Tourism Development, which runs the Jiuhua Mountain scenic area in central Anhui province, also shattered quarterly sales records.
Its revenue for the January-to-March period jumped 43% from the same period in 2019 and was the highest since its 2015 listing. Its shares were up 34% over the past 10 trading sessions.
Taoist sites have also seen strong growth in worshippers.
Longhu Mountain in Jiangxi province, one of the birthplaces of Taoism, received 4.73 million visitors during the first quarter, up 47% from the same period in 2019.
Wudang, another famous Taoist site featured in the film “Crouching Tiger, Hidden Dragon,” recorded a 23% jump in visits for the January-to-March period compared with 2019.
Placebo effect
Besides praying to deities for career success, supplicants are seeking luck in winning the lottery.
The Communist Party banned gambling in China when it took power in 1949. But the government runs two types of lotteries to raise money for sports events and welfare projects.
Lottery sales hit 50.33 billion yuan ($7.1 billion) in April, up 62% from a year ago, according to data released by the finance ministry in late May. That’s the highest sales for the month of April in a decade.
“It’s clearly a real-life placebo,” analysts at Hangzhou-based Caitong Securities wrote in a research report Sunday. In medical research, the placebo effect is the experience of feeling better after a dummy pill or treatment
During uncertain economic times, more people tend to seek solace in faith or other comforting activities such as buying lottery tickets, raising pets, attending concerts or spending time on hobbies such as anime or comics, the analysts said.
“The core attraction of buying lottery tickets is to bring people solace,” they added.
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The Fed raising interest rates could lead the economy to a recession
Georgetown Professor Nada Eissa explains why she believes the Fed’s actions to get inflation under control will likely lead to a recession.
Andrea Kramar and Yasmeen Qureshi, USA TODAY
Over the past year, economists have proclaimed that the U.S. is headed toward recession so relentlessly, you might think we’re already knee-deep in a slump.
But the economy has been remarkably resilient and, though wobbly at times, has repeatedly defied forecasts of a downturn. Economists, in turn, have continued to push out their estimates of when a recession will begin.
Yet forecasters still say there’s a 61% chance of a mild slide this year, according to those surveyed by Wolters Kluwer Blue Chip Economic Indicators.
All this begs the question: Are we in a recession now?
What happens in a recession?
Many Americans are familiar with the informal definition of a recession: Two straight quarters of declining gross domestic product, which is the value of all goods and services produced in the U.S.
But the real litmus test is more subtle. A recession is “a significant decline in economic activity that is spread across the economy that lasts more than a few months,” according to the National Bureau of Economic Research. NBER looks at a variety of indicators, particularly employment, consumer spending, retail sales and industrial production. The non-profit group often announces when a recession has begun and ended months after those milestones have occurred.
GDP fell each of the first two quarters of 2022 but much of the drop was traced to changes in trade and business inventories – two categories that don’t reflect the economy’s underlying health.
Why do economists expect recession?
Over the past 14 months, the Federal Reserve has raised interest rates at the fastest pace in 40 years to bring down inflation. Typically, when the Fed hikes rates so aggressively, borrowing to buy a home, build a factory and make other purchases becomes much more expensive. Economic activity declines, the stock market tumbles and a recession results.
Was there already a recession?
No. During the pandemic, households amassed about $2.5 trillion in excess savings from hunkering down at home and trillions of dollars in federal stimulus checks aimed at keeping workers afloat through layoffs and business closures.
As a result, Americans have a big cushion of savings to help them weather high inflation and interest rates. They’ve whittled down much of those excess reserves but about $1.5 trillion still remains, according to Moody’s Analytics.
Consumers also still have lots of pent-up demand to travel, go to ballgames and dine out now that the health crisis has receded. So while consumption has flagged, rising just 1% annualized at the end of last year, it bounced back and grew 3.8% in the first quarter.
Also, both households and businesses have historically low debt levels, Moody’s says, and so they’re not burdened by high monthly debt service payments.
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Are we in a recession right now?
The vast majority of top economists say no. Housing has been in the doldrums, with home prices starting to decline, because of high mortgage rates. And manufacturing activity has contracted for seven straight months, also in part because of high rates that have dampened business capital spending.
But consumer spending, which makes up about 70% of GDP, has been surprisingly healthy, jumping 0.5% in April after adjusting for inflation.
As a result, the most critical economic indicator- employment – has stayed strong, with the public and private sector adding an average of 283,000 jobs a month from March through May. Also, longstanding labor shortages have led many businesses to hold onto workers instead of laying them off despite faltering sales.
All told the economy has lost some steam but it’s not shrinking. GDP grew at a 1.3% annual rate in the first quarter. And it’s projected to grow 1% in the current quarter, according to S&P Global Market Intelligence.
Will there be a recession in 2023?
Most economists still expect a recession in the second half of the year. They say the Fed’s high interest rates eventually will be felt more profoundly by consumers and businesses. At the same time, banks are pulling back lending because of deposit runs that led to the collapse of several regional banks early this year.
Perhaps the most reliable indicator of a coming recession is an inverted yield curve. Normally, interest rates are higher for longer-term bonds than shorter-term ones because investors need to be rewarded for risking their money for a longer period.
But the yield on the 2-year Treasury bond has been well above the 10-year Treasury for months. That’s been a consistent signal of recession because investors move money into safer longer-term assets – pushing their prices up and their yields down – when the economic outlook grows dimmer.
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(Bloomberg) — The US and five major allies condemned economic coercion and non-market policies regarding trade and investment in a joint declaration that didn’t cite China by name but clearly had Beijing in mind.
The six countries expressed concern about practices that they say “undermine the functioning of and confidence in the rules-based multilateral trading system.”
The message from the US, Australia, Canada, Japan, New Zealand and the UK carries no economic consequences and mirrors one released by Group of Seven nations after a meeting of leaders last month.
A US Trade Representative official, speaking to reporters on condition of anonymity before the statement’s release, said China has been the biggest perpetrator of the behavior condemned in the declaration.
The official mentioned China’s decision to cut off trade with Lithuania in 2021 after that Baltic nation allowed Taiwan to establish a diplomatic office there as an example of the kind of economic coercion that the declaration singles out.
Read More: G-7 Eyes China With New Joint Effort Against Economic Coercion
In response to a reporter’s question, the official rejected any comparison to the US, which has become one of the most prolific purveyors of measures that could be seen as economic coercion, chiefly through financial sanctions and limits on technology exports to countries including China.
US sanctions occurred in accordance with US laws and procedures, and in light of relevant rules and norms, the official said. The declaration makes explicit that it didn’t apply to actions that have “a legitimate public policy objective.”
“These legitimate public policy measures include: health and safety regulations, environmental regulations, trade remedies, national security measures and sanctions, and measures to protect the integrity and stability of financial systems and financial institutions from abuse,” according to the declaration.
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