Aurelia Butler

The writer is head of emerging markets economics at CitiAs economists fret about whether we face a big or a small global recession, and whether we’ll face it sooner or later, it is worth bearing in mind that trade is already showing signs of deep stress. Risk appetite towards emerging economies might be shaken as a result.The annual growth rate of global import volumes turned negative late last year, remained negative in early 2023, according to Citi data, and there are few reasons to think that things will improve. As long as that’s true, it will be open, trade-dependent economies — especially in the developing world — that are hit hardest.There are three main reasons why trade growth seems so muted these days. The first is that we’re simply suffering a trade hangover after a Covid-era surge. That surge can be largely pinned on the different economic policy responses adopted in the pandemic. While the US and other liberal governments were bent on using fiscal transfers to shore up citizens’ purchasing power, China’s approach was more characterised by getting workers back into factories. In other words, China aimed to boost supply while its trading partners boosted demand. The result was an acceleration in trade growth, the likes of which we hadn’t seen since the economic recovery that followed the 2008 financial crisis.A second reason for the trade slump is the evident switch in expenditure, especially in advanced economies, from goods to services. There are only so many new TVs and computers one can buy in a short space of time, and services are less traded.Third, trade growth is being undermined by the nature of China’s economic recovery. Since this is an essentially “stimulus-free” recovery so far, a big part of the spending increase in China today is on services, rather than on officially-funded investment spending that tends to generate a much bigger import bill.And since confidence is so weak in China, what is called “consumption downgrading” — or more prosaically, bargain-hunting — is a widespread phenomenon among Chinese households. Without a “big bazooka” stimulus from Beijing, this is unlikely to change.Why won’t things get better? A couple of factors are worth mentioning. The first is the deteriorating outlook for global demand. Global economic growth this year looks as if it will come in at about 2.3 per cent, and next year will almost certainly be weaker than this, not least because big central banks are, in effect, aiming to induce slowdowns to regain control over inflation.A slowdown in growth will certainly create a more hostile environment for trade, and it is worth pointing out just how bad is the global demand environment that we’re entering. The last time the world saw two consecutive years of sub-2.5 per cent growth was in the wake of the financial crisis.Another reason why it’s not easy to be optimistic about trade is simply that we’re in a world that is clearly beyond “peak globalisation”, a fact that has been putting downward pressure on global trade growth for more than a decade now. In the early 1980s, world exports were equivalent to 15 per cent of global gross domestic product, according to IMF data. Globalisation took that ratio to 25 per cent just around the time of the 2008 crisis, after which a steady decline set in, bringing it down to 20 per cent in 2020.Another way of illustrating this sagging of global trade is to consider the relationship between global trade growth and global GDP growth. In the 10 years to 2020, the average rate of global trade growth fell below that of global GDP growth: this was the first decade since the second world war for which that statement holds true. When the rate at which the world is integrating falls short of income growth, the countries that rely most on that integration — emerging economies — will suffer disproportionately.The World Trade Organization thinks that global trade growth will once again fall below GDP growth in 2023, and rising protectionism, geopolitical tension and the localising of supply chains might well make this true for the foreseeable future. What that means is that if you’re a developing country without the cosmic good luck of being situated next to a big market — like Mexico, say — your chances of attracting export-related industries might now be constrained. Whatever one thinks of globalisation, it offered the hope that an emerging economy anywhere might attract long-term capital that could raise income levels by boosting exports. Those prospects look grim now, and not just for the next year or so.  More

Above the Viking swords and skeletons, across from the enchanting display of vintage dollhouses, Denmark’s National Museum contains a human-scale hamster wheel. Visitors may climb inside, grab the controls and slowly, arduously, start to walk and jog. A digital screen turns the treadmill into a pizza-delivery game, offering the chance to collect some virtual cash along the way. As a representation of the grinding repetitiveness of a gig economy job, the subtext is obvious. Unless you’re aged 11, that is. My son loved it.The hamster wheel is a centrepiece of an exhibition all about money and the economy: KA-CHING — Show Me the Money! Along with coins and banknotes, it has interactive quizzes, images of Damien Hirst’s “For The Love Of God” (that diamond-and-platinum skull) and a video of musicians Jimmy Cauty and Bill Drummond, aka The KLF, burning a million quid on a Hebridean island in 1994. (Alas, I noticed no discussion of the true value of what Cauty and Drummond were destroying; curious readers may pick up a copy of my book The Undercover Economist Strikes Back if they are desperate to know.)All in all, KA-CHING! is probably the best contender I’ve seen for a Museum of the Economy. Then again, there isn’t much competition. I’ve long fantasised about setting up such an institution, but it seems that few curators agree. While museums of science, technology and natural history adorn great cities all over the world, museums of the economy are rare. Part of the problem is that economics tends to study large, diffuse phenomena through an abstract lens. Museums flourish when there’s something exciting to look at, whether it’s a Spitfire or the skeleton of a T-Rex. Good luck putting “recession” or “investment mania” into a glass display case.And so many economy-adjacent museums shy away from the central subject matter. The Bank of England Museum, for example, is pleasant enough — spacious, elegant, free to enter — but its subject is really the Bank of England itself. There are exhibitions about the building’s architecture, the heroes and slave-trading villains who paced its corridors and, of course, coins and banknotes and a great big gold bar inside a Perspex box — you can reach in through a hole and try to pick it up. (Copenhagen’s KA-CHING! exhibit offers almost exactly the same Perspex-cased gold-bar-hefting experience.)A new book, Making Economics Public, includes a chapter describing the Economy Museum of the Federal Reserve Bank of St Louis. The Economy Museum tries to discuss and demonstrate economic ideas beyond money. There’s an exhibit about choice and opportunity cost, an eight-player simulation of a trading pit, a game of barter. It sounds fun, even if the museum does also contain one of those accursed lift-the-gold-bar exhibits.Could we do better? Perhaps. When I created my books and radio series Fifty Things That Made The Modern Economy, my aim was to show the hidden economic forces around us by refracting them through everyday inventions. Not all of them compare favourably with a T-Rex, alas. I’m not sure how one would put “the welfare state” in a museum. Perhaps a waxwork of William Beveridge would do? Nor does the index fund lend itself to an exhibit, even if the idea was once praised by the great economist Paul Samuelson as an invention to stand alongside “the wheel, the alphabet, Gutenberg printing, and wine and cheese”.But other objects are more promising. The V&A wisely acquired Thomas Thwaites’s “Toaster Project” — a physical record of his doomed attempts to build himself a working toaster, starting with the search for raw materials. It brilliantly illustrates, by counterexample, the decentralised genius required to build a mass-market product; perhaps my nascent Museum of the Economy could arrange a loan from the V&A.If so, I’d also beg the Science Museum for their Moniac, an amazing hydraulic computer designed to simulate the British economy. I’d pair it with a brief description of the life of its inventor, Bill Phillips, who had more adventures than Indiana Jones.Perhaps someone could be persuaded to supply a cuneiform tablet from Mesopotamia; thanks to the work of archaeologist Denise Schmandt-Besserat, we now believe those tablets to exemplify the simultaneous development of contracts, accounts, mathematics and writing itself, all in service of an increasingly complex urban economy.Scarcely cheaper would be a printer ink cartridge, the perfect introduction to ideas such as two-part pricing and switching costs. A tulip could serve as a springboard for a discussion of financial manias, but a steam locomotive from York’s National Railway Museum might be more historically accurate. It is also one of the few exhibits that might beat even a T-Rex for the ability to inspire sheer awe.To illustrate the evils of capitalism, perhaps a Bonsack machine — an invention to efficiently produce the deadliest product in human history, the cigarette. And on the more cheerful side, Norman Borlaug’s starvation-fighting dwarf wheat, and an interactive display showing how long a person has to work to afford an hour’s worth of good light, from the oil lamp (days) to the LED (seconds).There’s more we could do, I am sure. So if you happen to have an empty exhibition space, friends in South Kensington and a million quid to burn, we should talk. Tim Harford’s children’s book, ‘The Truth Detective’ (Wren & Rook), is now availableFollow @FTMag on Twitter to find out about our latest stories first More

The investment chief at one of the world’s top hedge funds has warned the US battle with inflation is far from over, and bets on a rapid series of interest rate cuts from the Federal Reserve next year are premature.The comments from Bob Prince, co-chief investment officer of Bridgewater Associates, pour cold water on this week’s global rally in stocks and bonds, which was sparked by relief at data showing annual US inflation had fallen to a more than two-year low of 3 per cent in June. Prince at Bridgewater, which manages $125bn, said markets were wrong to assume the Fed will soon ease monetary policy. “The Fed is not going to cut,” he told the Financial Times. “They are not going to do what is priced in.”Pricing in futures markets indicates that investors anticipate one further 0.25 percentage point rate rise from the Fed’s current target range of 5 to 5.25 per cent by the autumn. Over the following 12 months they expect the central bank to reverse course, cutting borrowing costs six times to around 3.8 per cent by November 2024.Traders ramped up their bets on rate cuts after this week’s inflation figures. Although headline inflation fell sharply, core inflation — which excludes the volatile food and energy sectors and is very closely watched by the Fed — fell more slowly to 4.8 per cent. The core rate particularly remains far above the Fed’s stated goal of 2 per cent.“Inflation has come down but it is still too high, and it is probably going to level out where it is — we’re likely to be stuck around this level of inflation,” Prince said. “The big risk right now is that you get a bounce in energy prices when wages are still strong”, which could drive a rebound in inflation, he added.Prince, who oversees the Connecticut-based firm’s assets with co-CIOs Karen Karniol-Tambour and Greg Jensen, said he believes core inflation is likely to bottom out between 3.5 and 4 per cent, pushing the Fed to tighten monetary policy further and disappointing investors who this week sent US stocks to their highest level in over a year. That tightening “could take the form of holding rates steady in the face of expectations of a cut”, he said.Expectations that the Fed will soon end its historic tightening cycle have helped drive market optimism all year. The two major US stock indices — the benchmark S&P 500 and the tech-heavy Nasdaq Composite — have pulled out of bear-market territory this year to rise 16.5 and 33 per cent respectively. The returns on bonds have been more muted, with the Bloomberg global aggregate index up 2.4 per cent this year, but investors have locked in some of the highest yields in decades on hopes that the Fed is near the end of its tightening.

Even so, Prince said “it’s just not a good environment to be holding assets generally in bonds or stocks”, adding that cash is currently an attractive alternative.He said Bridgewater had been “positioned for a tightening cycle”, which has meant taking a cautious stance on riskier asset classes. “Our performance is close to flat this year. We were down some in early January and we’ve been gradually making it back since then.” He did not discuss specific performance figures on either of the firm’s two primary strategies: its Pure Alpha fund — a traditional macro fund — or its risk-parity All Weather fund. The Fed will have to keep rates higher for longer because its inflation fight is stymied in part by a strong labour market, said Prince. Fiscal and monetary programmes in the early days of the Covid-19 pandemic helped build up household savings, but also tightened the labour market enough that wages rose meaningfully. That has meant that US consumers’ income has been higher, allowing them to continue absorbing price increases. “Current levels of spending are being financed by income, not a credit expansion,” Prince said. “So inflation is really hard to bring down.” More

SYDNEY (Reuters) -Australia has appointed the first female head of its central bank, passing over the current governor to elevate his deputy to the high-profile job amid a public backlash over steeply rising interest rates. Australian Treasurer Jim Chalmers and Prime Minister Anthony on Friday announced Michele Bullock would head the Reserve Bank of Australia (RBA) for the next seven years, having chosen not to reappoint Governor Philip Lowe for a second term.Lowe will leave on Sept. 17, marking the end of his 43-year career at the bank. The decision comes as Lowe is due to accompany Chalmers to a Group of 20 meeting in India next week.In a press conference, Chalmers said it was not out of the norm for a governor to only serve one term and he felt Bullock was best placed to lead the RBA through a coming reorganisation.”This is a history-making appointment,” Chalmers told reporters. “Michele Bullock will become the first woman to ever lead the Reserve Bank in this country.” The government has been under pressure to dump Lowe for encouraging people to borrow in 2021 by saying interest rates were unlikely to rise until 2024, only to start hiking two years early in mid-2022. The central bank has since lifted rates 12 times to a decade-high of 4.1%, adding hundreds of dollars to monthly mortgage repayments at a time when a cost of living crisis is already stretching household budgets.Lowe even took the extraordinary step of apologising to any borrowers who had acted on his policy assurances.A SAFE CHOICEJust this week, Lowe said it was possible rates would have to rise yet further to bring inflation to heel. He is due to chair the next two policy meetings in August and September and markets are divided on the likely outcomes.Lowe had also said he would be honoured to stay if asked, but would understand if the government wanted a new leader. His two predecessors, again both career central bankers, were reappointed to second terms and each served 10 years in total.”The Reserve Bank is in very good hands as it deals with the current inflation challenge and implementing the recommendations of the Review of the RBA,” Lowe said in a statement on Friday.Bullock, who joined the RBA in 1985 with a masters from the London School of Economics, is widely respected by analysts and financial markets showed little reaction to the change.”My interpretation is this is much better than a political appointee,” said Hugh Dive, chief investment officer at Atlas (NYSE:ATCO) Management. “Markets would have been concerned if it was someone very overtly political. So it’s probably the best outcome.”The RBA is currently undertaking the biggest reorganisation in decades after an independent review into its operations recommended sweeping changes to the way policy was formulated and communicated.”It is a challenging time to be coming into this role, but I will be supported by a strong executive team and boards,” Bullock said in a statement. More

SYDNEY (Reuters) – The head of Australia’s central bank suffered an early end to his 43-year career on Friday as past missteps in pandemic policy so tested public trust in the institution that the government felt compelled to drop him.If there’s a moral to the tale of Reserve Bank of Australia (RBA) Governor Philip Lowe it’s that when it comes to policy stimulus, no matter how well meaning, it is possible to do too much.Lowe’s (NYSE:LOW) dedication to the bank is not in doubt, having joined straight from school in 1980. Armed with a doctorate from MIT, he steadily climbed the ranks to deputy governor in 2012 and the top job four years later.Whip-smart and soft spoken, Lowe was determined to use all the RBA’s powers to support the economy when the pandemic struck and Australia closed its borders, along with much of its economy. A series of cuts took interest rates to an all-time low of 0.1%, while the bank pumped hundreds of billions of dollars into the economy through bond purchases and cheap loans to banks.When combined with massive fiscal spending from the government, the stimulus proved wildly successful and Australia became the first developed nation to recover the economic output lost to the pandemic.Even now, unemployment is near its lowest in 50 years at 3.6% and there are more Australians in work than ever before.The use of so much unprecedented policy carried risks, however, and Lowe made two major missteps. The first mainly impacted markets while the second, and more fateful, soured sentiment with the public and politicians.The first came in late 2021 when Lowe, faced with strains in the debt market, decided to abruptly end the bank’s purchases of short-term bonds, a major plank of its stimulus campaign.The shock move savaged bond prices and badly wrong-footed investors, leaving many investors nursing painful losses. A later review found the event had caused the bank “reputational damage” and the policy was unlikely to be used again.It also blotted Lowe’s copy book with a powerful investment community that otherwise might have been more voluble in his defence.The more telling error was Lowe’s aggressive use of forward guidance, a common ploy for getting people to borrow and spend more by promising not to take the punchbowl way.Lowe’s mistake in 2021 was to be too specific on timing by repeatedly saying rates were unlikely to rise until 2024.That projection was heavily caveated on the bank’s economic forecasts being correct, but the distinction was lost in translation and the media regularly reported it as a “pledge”.The policy began to rapidly unravel in early 2022 when domestic demand recovered far faster than anyone had expected and a wave of global inflation washed up on Australia’s shores.With prices rising rapidly, Lowe was forced to reverse course and hike rates in May, a whole two years earlier than forecast.By then Australian households were loaded with record amounts of debt and did not take well to rising borrowing costs. Many blamed Lowe for misleading them and bombarded lawmakers with angry messages, calling for his head.Much of the media soon joined in, with one tabloid sending paparazzi around to Lowe’s home to capture him taking out the trash.Lowe resisted the pressure and defended his record by pointing to the strength of the labour market. Yet in a testy exchange with lawmakers, he still took the extraordinary step of apologising to anyone who had trusted the bank and borrowed money as a result.”I’m certainly sorry if people listened to what we’d said and then acted on that,” Lowe conceded, words few central bankers would care to utter.But the clamour has only grown louder as the RBA kept tightening, hiking rates 12 times to a decade-high of 4.1% Feeling the political heat, Treasurer Jim Chalmers launched an independent review of the central bank which recommended a radical shake up of its operations, including giving more voting power on policy to outside “experts”.Lowe’s position was increasingly in doubt as Chalmers came under intense pressure not to extend his seven-year term when it ends in September. Lowe’s two predecessors both got extensions, serving 10 years each.Ever the diplomat, Lowe said the RBA was “in very good hands” to deal with the current inflation challenge and to implement recommendations from the review.While Chalmers professed great respect for Lowe, he was actively considering a number of possible replacements, including the current deputy governor Michele Bullock and several long-standing public servants.In the end, Bullock was seen as the “ideal” candidate to lead a new era at the bank. “This is a history-making appointment,” Chalmers told reporters. “Michele Bullock will become the first woman to ever lead the Reserve Bank in this country.” More

Australian media had reported a handful of frontrunners for the role, including Bullock, Treasury Secretary Steven Kennedy and Australian Bureau of Statistics head David Gruen. Bullock currently serves as deputy governor for the RBA, with her replacement to be named by the Treasurer in the coming months. She will take over as governor on September 18, 2023, and will serve for a period of seven years. Bullock’s appointment comes as part of a broader overhaul of the RBA, which was announced earlier in 2023 after the conclusion of an independent review. The new RBA governor will oversee several changes to the bank, including the scrapping of its monthly meetings in favor of eight a year, while the scope of the bank’s policies will also be narrowed to combating inflation and supporting employment.   “It is a challenging time to be coming into this role, but I will be supported by a strong executive team and boards. I am committed to ensuring that the Reserve Bank delivers on its policy and operational objectives for the benefit of the Australian people,” Bullock said in a statement posted on the RBA’s website. Bullock’s appointment comes amid growing discontent with the RBA, following several perceived missteps over policy signaling during the COVID-19 pandemic and Australia’s worst inflationary surge in over 30 years.Lowe spearheaded the RBA’s most aggressive pace of interest rate hikes since the 2008 financial crisis, with the bank having hiked rates 12 times over the past year to combat runaway inflation. But this came contrary to his signaling during the COVID-19 pandemic, when he had made assurances that interest rates would not rise until at least 2024.“The Reserve Bank is in very good hands as it deals with the current inflation challenge and implementing the recommendations of the Review of the RBA,” Lowe said in a statement.Bullock takes over as governor during a challenging time for the Australian economy, with growth and employment set to slow under high interest rates and sticky inflation. She was appointed as deputy governor in 2022, following the shock exit of then deputy Guy Debelle to join Fortescue Metals ‘ (ASX:FMG) green unit. More