4 min read

A devastating global recession

The World Bank isn't betting on a soft landing; Philip Lowe warns that we're at risk of turning into Argentina; what's next for Taiwan; and the outsourcing of manufacturing to China that never actually happened.

1—A devastating global recession

The World Bank's latest report, Is a Global Recession Imminent?, appears to lean towards the affirmative:

"Global growth is slowing sharply, with further slowing likely as more countries fall into recession. My deep concern is that these trends will persist, with long-lasting consequences that are devastating for people in emerging market and developing economies. To achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production. Policies should seek to generate additional investment and improve productivity and capital allocation, which are critical for growth and poverty reduction."

The report examines previous global recessions since 1970 to provide policy advice, recommending governments ease labour-market constraints, boost the global supply of commodities and strengthen global trade networks.

Good luck with that! Back in the real world Europe is raising taxes on its energy producers (both non-renewable and renewable), and if anything the world appears to be moving further towards the "protectionism and fragmentation" against which the World Bank warns.

You can read the World Bank's full report here (45 pages).


2—Society's choices

The governor of the Reserve Bank of Australia (RBA), Philip Lowe, testified before the House of Representatives on Friday, arguing that high house prices aren't his fault:

"In parts of the US, [where] interest rates have been lower than they were here, housing prices are much lower. Because as a society, they've made different choices about where they live, investment in transport, and taxation. It's the choices we've made as a people, even though interest rates have influenced the cycle, [and] the central bank can't do anything about [it]."

Lowe carried on with that theme when discussing the nation's newfound fiscal problems (Australia's federal net debt, which was zero in 2007-08, is now approaching 50% of GDP):

"The community wants the government to provide a whole range of services, understandably. We want really high-quality aged care, great education, world-class disability care, fantastic national defence, great infrastructure.

The community wants all these things from our governments. What we haven't worked out as a community is how to pay for it, and this is why we've got these budget deficits despite full employment and the record terms of trade.

You can raise more taxes to pay for the things the community want. You can cut back in other areas. Both of these things are very difficult. Or we can get the economy to grow more strongly so the pie is bigger, and that requires hard choices on a whole bunch of structural reform issues."

In other words, there is no free lunch – you can only print and borrow so much until you end up like Argentina, which just set its cash rate at 75% in an attempt to slow 100% annual inflation.

You can read Lowe's full opening statement here (~10 minute read), the ABC's coverage of the questions and answers here (~6 minute read) or the Australian's take here (~4 minute read).


3—What's next for Taiwan

Speculative tweet about Xi Jinping's Taiwan plans.

4—The outsourcing that never happened

"...the China emissions problem is not a product of offshoring. Which means America's ability to force China to reduce emissions through policies like carbon tariffs is very limited. The massive amount of carbon emitted by China each year is not a problem made in America. It is a problem made in China, and one that only China can solve. And if China doesn't choose to solve it, the world will indeed burn. That's an uncomfortable fact, but it's one we have to face."

That's from Noah Smith, who points out that despite the "widespread" view that the US offshored most of its manufacturing to China, the reality is far different: US imports from China "are less than a fifth of the size of the US manufacturing sector", and US manufacturing output has actually steadily increased over time.

Smith also notes that US consumption-based emissions data – "the carbon emissions that are necessary to produce the goods and services that a nation consumes" (i.e. they can't be offshored) – show that the US only offshores ~7% of its emissions:

"But when we look at the change in consumption-based emissions vs. production-based emissions, we see even more clearly that offshoring wasn't the culprit. For example, US emissions peaked in 2007 and have fallen since then. If this was due to offshoring, we'd expect to see consumption-based emissions fall by a lot less than production-based emissions. But in fact, consumption-based emissions actually fell by more!"

Perhaps this is a bad time to point out that one of the "dialogues" China recently abandoned following House Speaker Pelosi's visit to Taiwan was the one on "Enhancing Climate Action in the 2020s".

You can read Smith's full post here (~6 minute read).


5—Further reading...

🚢 Demand is fading: "Shares of FedEx closed down more than 21% Friday after the company posted bleak preliminary earnings, citing weakening demand in global shipment volumes."

🛢️ The German government seized three refineries owned by Russia's Rosneft "on the grounds that the production of the oil distilleries was endangered by Russian ownership of the company".

🧠 Brain drain: "About half of South Africa's top earners and university graduates are considering emigration as citizens lose faith in the country's future, the Social Research Foundation said, citing a survey it conducted."

👩‍💻 Uber's systems were "deeply and thoroughly compromised" by an 18-year-old who spammed an employee with multifactor login attempts (MFA), then called them "pretending to be an Uber IT person and saying that the MFA notifications would stop once the target approved the login".

⚔️ Haiti is in the midst of a "low-intensity civil war", as "Simmering outbreaks of unrest throughout the island nation have coalesced into the largest wave of protests in years following the government’s announcement last Sunday that it would raise the country’s highly subsidized fuel prices."