Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Death notices for the surge in globalisation that started in the 1990s have been posted for about as long as the process itself. Covid-19, the US-China conflict, climate change and the struggle for green industrial supremacy are all being offered as reasons for globalisation coming to a stop. And yet it moves.Now, it’s true that the era of “hyperglobalisation” from roughly 1992 to 2008, where trade grew markedly faster than global gross domestic product, is over — a shift very well described in this new paper from Arvind Subramanian, Martin Kessler and Emanuele Properzi.Yet on close examination it appears some of the positive parts of globalisation have either slowed naturally or are still in train, and what has gone into reverse wasn’t much of a loss. There are some serious challenges ahead in navigating macroeconomic shocks, particularly in China, and always the risk that geopolitical tensions will escalate rapidly. But only those who fetishise the internationalisation of an ever-larger share of activity in every conceivable economic sector need worry much about what’s happened so far.Globally, goods trade relative to GDP has flatlined or shrunk a little since the financial crisis in 2008. Services trade is still rising as a share of GDP, though at a slower rate than before, and in any case the numbers are distorted by inaccurate reporting for tax avoidance purposes.But, as the study notes, the remarkable development isn’t that goods trade is slowing but that it’s remained as strong as it has. It has faced stiff headwinds, but they are more to do with the evolution of the world’s economies than with shocks such as Covid or meddling governments. For one, the process of labour-cost arbitrage — rich countries sourcing from lower-income economies — has somewhat run out of space, at least in those countries (such as China) where good infrastructure has connected low-cost workers to global value networks. (There’s a lot more that could be done in countries like India, but poor infrastructure and business climate have held them back.) That’s a good outcome to be celebrated. Trade in goods postwar has played such a big part in reducing global inequality that there are fewer poor workers left for it to liberate.Relatedly, although industrial output held its own as a share of global GDP in the 2010s, a smaller share of global manufacturing was traded internationally. China, getting economically more sophisticated and moving up the value chain, took more supply networks inside its own economy.There is one part of globalisation that has definitely retreated, but that, if anything, is a cause for relief. Cross-border capital flows have never recovered their levels from before the global financial crisis. Good thing too: pre-crisis capital movements reflected a financial bubble. It was always a mistake for supporters of globalisation to equate free trade in goods and services with liberalised capital accounts. It’s somewhat concerning that flows of foreign direct investment have also fallen off, since that is more closely connected with economic growth. But a lot of FDI is merger and acquisition activity, which generates fees for lawyers and bankers but doesn’t do much for recipient economies.Greenfield FDI, which adds to productive capacity, is of much greater help, and the number of new such projects has remained fairly constant since the financial crisis. Lots more investment in low and middle-income countries is needed, especially to effect the green transition. But that’s a failure of governments in not creating adequate incentives for climate finance, not the global financial system seizing up.As ever when being optimistic about globalisation, it’s as well to offer chunky caveats. China’s economic travails — the failure of growth to pick up post-Covid, the collapse of FDI — look quite serious. The Chinese authorities, initially reacting to the 2008 financial crisis, moved their policy focus from export promotion to infrastructure spending, particularly in housing. (The country’s exports continued to gain global market share, however.) Shifting demand to the domestic economy is in general the right policy for China, but not through fuelling a property boom. Of course, a fall in FDI to China need not be devastating to the creation of global value networks as international companies may simply switch their investments to other economies. But if China returns to actively promoting exports and creates more gluts in goods such as semiconductors and electric vehicles, the resulting flood of exports will heighten trade tensions. It may also do more to postpone a Chinese economic crash, rather than prevent it.Still, the study by Subramanian et al should remind us why we care about globalisation. The integration of world markets in goods, services, capital, data and people is not something to be pursued at all costs. It is a means to an end. For 30 years, goods and services trade have promoted prosperity, including creating and (admittedly imperfectly) disseminating technologies to improve lives. Managed properly, it can help do the same to combat climate change.Globalisation has certainly not failed. Nor, for the moment, has it hit a wall. It is evolving, partly in response to the changes wrought by its own success. The much-hyped era of hyperglobalisation has faded, but solid gains are still being [email protected] More

Stay informed with free updatesSimply sign up to the More

“Axe the tax” has become the rallying cry for political opponents of Justin Trudeau, Canada’s prime minister. Last month, they forced him into an embarrassing climbdown over his flagship climate policy.Canada’s carbon pricing system, in place since 2019, is seen as a test case of how to win voters’ support for a green transition that carries costs for consumers in the short term. It gives each province and territory the freedom to design its own system, with the proceeds — set to rise over time, in line with the federal price on pollution — collected locally and returned to households through a system of rebates.But, despite this design, the levy remains so unpopular that Trudeau was pressured into agreeing a three-year delay to its imposition on home heating oil, in order to keep alive his chances of re-election in 2025.Trudeau’s travails show how difficult it remains to win public acceptance for policies that impose the upfront costs of the net zero transition on households and companies already struggling with high inflation.Other leaders are similarly hesitant. In France, president Emmanuel Macron, stung by the gilets jaunes protest movement that began in 2018 over fuel taxes, has called for a “regulatory pause” on new green measures. In the UK, Prime Minister Rishi Sunak has delayed bans on the sale of new gas boilers and new petrol and diesel cars.All this comes in the context of a drive by US President Biden’s administration to turn the green transition into a vote-winning, job-creating juggernaut — by pouring taxpayer money into subsidies for clean energy investment.This subsidy-driven approach has alarmed some economists, because it looks likely to be a vastly more expensive method of achieving climate goals than market-driven mechanisms.“It sounds so much nicer, but the numbers just don’t work out . . . The state doesn’t have deep enough pockets to pay for all of the decarbonisation we need,” says Georg Zachmann, a senior fellow at Bruegel, a Brussels-based economic think-tank.For years, economists have been urging governments to put a price on carbon — via taxes or emissions-trading systems — as the most cost-effective way to spur investment in decarbonisation, encourage energy efficiency, and create a level playing field for companies adopting clean technology.In October, the IMF warned that the fiscal cost of tackling climate change could be “unsustainable” without a tax on pollution. Vitor Gaspar, IMF director of fiscal affairs, said that “scaling up the current policy mix, heavy on subsidies and other components of spending” could raise public debt in a typical economy by 40-50 percentage points of gross domestic product by the middle of this century.But any global deal to set a carbon price — or even adopt the IMF’s suggestion of a looser minimum price floor for big emitters — remains an elusive goal.“It’s the theoretical ideal, but it’s practically infeasible,” says Misato Sato, a research fellow at the Grantham Research Institute on Climate Change and the Environment.An annual stock-take by the World Bank found that direct carbon-pricing mechanisms — whether taxes, credits or emissions trading systems — covered just 23 per cent of global greenhouse gas emissions in 2023, up from 7 per cent a decade ago but very little changed from 12 months earlier.More worryingly, less than 5 per cent of global emissions were covered by a price high enough to drive investments at the scale and pace needed and, in many countries, carbon prices did not keep pace with inflation.This means the effect of carbon taxes and trading is still “dwarfed” by the impact of traditional fuel excise duties and fossil fuel subsidies worth more than $1tn a year, the World Bank said.Yet economists believe that, despite this sluggish progress, there are grounds for optimism, with a growing recognition that carbon pricing needs to be part of a mix of policies, combined with regulation, subsidies to spur innovation, and fiscal help for poorer households and countries to adjust.Developing countries should not yet be expected to burden their economies with carbon prices as high as those already in place in the EU, since they did not bear the same responsibility for past emissions, argues Simone Tagliapietra, a senior fellow at Bruegel.China’s nascent emissions trading scheme does not yet have a broad enough scope or a high enough price, notes Zachmann — but it could be ramped up in future, and is already prompting other big emitters in the region, including India and Indonesia, to develop their own strategies.Sato says the EU’s policy of returning revenues from its emissions trading schemes to member states, to be spent on climate-related activities, has “visibly worked to buy political support for those schemes”.Meanwhile, the EU’s new Carbon Border Adjustment Mechanism — which, from 2026, will tax carbon-intensive imports from countries outside the bloc that have weaker climate regulations — could spur some key trade partners into action. But, as the EU extends its pricing regime to areas that affect voters more directly, such as transport and buildings, it is increasingly important to channel the revenues into protecting poorer households and helping those on middle incomes to take up greener alternatives, says Tagliapietra.“Carbon pricing should go hand in hand with carbon dividends . . . Without carbon dividends, it is socially and politically unsustainable,” he says.Climate CapitalWhere climate change meets business, markets and politics. Explore the FT’s coverage here.Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here More

Cookies on FT Sites

We use
cookies
and other data for a number of reasons, such as keeping FT Sites reliable and secure,
personalising content and ads, providing social media features and to
analyse how our Sites are used. More

SEOUL (Reuters) – South Korea’s central bank kept its benchmark interest rate unchanged again on Thursday as global uncertainty and resistance to higher borrowing costs outweighed concerns around sticky price pressures.The Bank of Korea (BOK) held its key policy rate at 3.50% at a policy review meeting in Seoul, as expected by all 36 economists polled by Reuters.The pause marks the seventh straight meeting at which officials have remained on the sidelines during this rate cycle, in which borrowing costs have jumped 300 basis points.The bank also upgraded next year’s inflation forecast to 2.6% from 2.4%, while cutting its projections for economic growth to 2.1% from 2.2% seen previously.Most economists see the BOK as having reached its peak rate, and expect it to start easing policy from the third quarter of next year as cooling inflation makes restrictive borrowing costs difficult to justify to the public. Asia’s fourth-largest economy grew faster than expected in the third quarter thanks to improving exports, while business sentiment for December reached the highest in over a year. The restrictive monetary policy has not yet resulted in slower inflation, however. Consumer inflation accelerated for a third month in October to 3.8% from a year earlier amid higher food costs, far above the BOK’s target rate of 2%.”We see a high chance that this meeting is their last time making a hawkish-hold decision before shifting to dovish-hold from next year,” said Kathleen Oh, an economist at Morgan Stanley.”The timing of the BOK’s view on its medium-term inflation stabilisation is expected to dictate the timing of the BOK’s pivoting.”The bank’s forecasts note that inflation would return to target of 2% by the end of next year.Governor Rhee Chang-yong will hold a news conference at around 0210 GMT, which will be livestreamed via YouTube. More

BANGKOK (Reuters) -Thailand’s central bank kept its key interest rate steady on Wednesday, as expected, saying the current level was suitable to support the country’s economic recovery, while cutting its growth outlook.The Bank of Thailand (BOT) also said it had factored in uncertainty over the potential impact of the government’s controversial signature policy of giving away 500 billion baht ($14.38 billion) to 50 million Thais to stimulate sluggish spending.”Rates are considered low, but were suitable for the Thai economy in the medium-term,” assistant central bank governor Piti Disyatat told reporters after a policy meeting, adding rates were able to handle risks that may arise from the government’s “digital wallet” policy.The handout plan, slated for May, could face legal challenges and a staunch opposition in parliament. Economists and some former central bankers have said it could result in fiscal strains and stoke inflation.But last week, Prime Minister Srettha Thavisin said the economy was in “crisis”, stressing the need to forge ahead with the plan. In a unanimous vote, the BOT’s monetary policy committee ended a year-long tightening cycle, keeping its one-day repurchase rate at 2.50%, the highest in a decade, after hiking rates by 200 basis points since August last year to curb inflation. But the BOT also cut its 2023 and 2024 economic growth forecasts, raising speculation it may start to cut borrowing costs from the second half of next year if domestic and global demand do not pick up.The Bank lowered its growth forecast for this year to 2.4% from 2.8% seen earlier, and cut its 2024 growth outlook to 3.2% from 4.4%. The economy expanded 2.6% last year.However, in a scenario where the digital wallet policy is implemented, the BOT said it sees next year’s growth at 3.8%. Southeast Asia’s second-largest economy grew 1.5% in the third quarter from a year earlier, its slowest pace this year.The current interest rate is appropriate and ensures ensuring sufficient policy space “in light of an uncertain outlook,” the BOT said in a statement. All 28 economists in a Reuters poll had predicted the BOT would stand pat on Wednesday, with median forecasts showing no policy change until at least July 2025.”Risk between growth and inflation is roughly balanced,” said Kobsidthi Silpachai of Kasikornbank, adding that rates would be held steady for a year.Capital Economics, however, said “with inflation low and the recovery likely to underwhelm, we think policy cuts are likely in the second half of next year”.Thailand’s headline consumer price index (CPI) in October declined 0.31% on-year.The BOT predicts headline inflation of 1.3% this year, versus 1.6% projected earlier, while 2024 inflation was seen at 2.0%, not factoring in the impact of digital wallet spending, compared with 2.6% projected earlier. The BOT targets headline inflation in a range of 1% to 3%.The BOT expects foreign visitor arrivals at 28.3 million this year and 34.5 million next year, versus a pre-pandemic record of 39.9 million arrivals, whose spending accounted for more than 11% of GDP.Exports, another key growth driver, are expected to fall 1.5% this year due to softening global demand, but are projected to increase 4.3% next year, versus a previous projection of a 1.7% drop and a 4.2% rise.($1 = 34.78 baht) More

Xi made the trip on Tuesday and Wednesday and he inspected the Shanghai Futures Exchange, an exhibition on Shanghai’s sci-tech innovations and a government-subsidized rental housing community, the report said.He was seen with other government leaders, including Cai Qi, the head of the powerful Secretariat of the Communist Party of China Central Committee that oversees day-to-day affairs of the CPC. Vice Premier He Lifeng, Shanghai’s Communist party secretary Chen Jining and Mayor Gong Zheng also accompanied his visit. A video posted by state television showed Xi inspecting a humanoid robot and a section of an exhibition showcasing China’s integrated circuits technology, an industry that he has been pushing for more modernisation and self-sufficiency.He could also be seen touring an affordable housing compound in Shanghai’s Minhang district. The Chinese government has in recent months pledged more support in boosting affordable housing as high home prices in major cities like Shanghai shut out many buyers.It was his first visit to the city since November 2020 and comes a year after historic street protests against China’s zero-COVID policy broke out in Shanghai. The visit also coincides with the 10th anniversary of the establishment of the Shanghai Free-Trade Zone (FTZ), a testing ground for economic reforms that has struggled to live up to its initial promise of free-flowing currency and easier international trade.Shanghai is home to China’s largest foreign business community, hosting firms such as Tesla (NASDAQ:TSLA), Disney and L’Oreal, but its economy and global reputation was badly hit by a two-month-long COVID-induced lockdown last year. Xi’s visit also comes as confidence among foreign businesses and private investors in the Chinese economy remains subdued, hurt by the country’s past COVID policies and a years-long regulatory crackdown on sectors from technology to property that the government began easing this year. Overtures by Chinese Premier Li Qiang, a close Xi confidant, to both foreign firms and local entrepreneurs over the past year where he has declared the country open for business has been greeted with scepticism in light of a broader anti-espionage law, and moves such as raids on consultancies, as well as a lack of policies to boost confidence. (This story has been refiled to fix a typo in paragraph 5) More

(Reuters) – Origin Energy on Thursday rejected a “complex” $10.6 billion back-up offer by a Brookfield-led consortium to buy out the firm but recommended investors agree to the group’s existing bid.Origin shares were down 2.5% to A$8.12 in early trade on Thursday, their lowest in eight months.Origin Energy said in a statement its board had deemed the revised proposal “incomplete, complex, highly conditional and not providing sufficient certainty for its shareholders”.Instead, it said Origin investors should vote in favour of the consortium’s previous offer at a meeting due to be held in Sydney on Monday.The Brookfield consortium did not immediately respond to a request for comment.The consortium has offered A$6.59 and $1.86 in cash and a A$0.39 special dividend per Origin share. Taking into foreign exchange movements, the bid is now worth A$9.39 per share. The revised proposal, revealed last week, was at the same price but would allow institutional investors to remain invested in Origin’s energy markets business that would be owned by Brookfield.If that bid failed to achieve 75% shareholder support, an alternative proposal has been lodged that would see Origin sell the energy markets business to Brookfield for A$12.3 billion ($8.14 billion). In that case, EIG would make an off-market takeover offer for the rest of Origin, largely a 27.5% stake in Australia Pacific LNG (APLNG).Origin shareholders would receive A$9.08 per share, or $10.2 billion in total, with an additional A$0.22 a share if EIG got up to 90.1% control of Origin. “It is also the board’s view that the value of the revised proposal does not adequately compensate shareholders, including taking into account the extended timeline that the proposal would require,” Origin said. The new revised proposal also includes requiring finalisation of various funding arrangements along with a set of regulatory approvals, thereby extending the timeline of the deal, Origin said.($1 = 1.5108 Australian dollars) More