January 20, 2023: Global News Roundup
Currencies tank and inequality skyrockets as global growth slows
This post was originally published on IPEwithSBB.org.
The Global News Roundup collects news stories from entirely international (non-US) media sources on variety of pressing global issues and events.
In what I expect will be a popular trend in the first half of 2023, Taiwan’s 26-quarter consecutive run of economic growth ended last year, according to estimates released this week by Directorate-General of Budget, Accounting and Statistics. The economy contracted 0.86% during 4Q 2022 (a seasonally adjusted annualized decline of 4.24%), exports were down 8.6%.
In related news, and following prolonged slumps in currency values across the global South last year, the Egyptian pound last week reached historic lows relative to the US dollar. Over the past year, the currency has lost almost half of its value, inflation is running at about 20%, foreign exchange is scarce, and “grocery stores are visibly becoming more empty”. Egypt is one of several middle- and upper-middle income economies to have tapped the International Monetary Fund for assistance over the past year (the list also includes Pakistan, Chile, Argentina, and Bangladesh). Like the World Bank, the IMF typically places policy conditions on its credit to developing countries, in this case requiring Egypt to float the pound as a condition of the recent $3 billion emergency loan. Al Jazeera reports that President el-Sisi is blaming capital flight induced by the Ukraine war for Egypt’s economic problems: “In the weeks after the war broke out, foreign investors sold off Egyptian treasury bills, resulting in an estimated $20bn flowing out of the country.” Others are blaming the IMF’s loan conditions for the country’s recent economic troubles, noting that the local currency fell 10% following the IMF’s announcement of the required exchange rate reforms (see also here on capital flight from Egypt).
Ghana and Pakistan were also wrestling this week with dangerous currency depreciations, rising import bills, debt, and shrinking foreign exchange reserves. The Lebanese pound further reached a historic low, having lost 97% of its value against the US dollar since 2019: “The depreciation of the currency is fueling one of the highest inflation rates in the world, surging to 189 per cent in the first 11 months of 2022 from the same period a year earlier.” Lebanon is also trying to obtain an IMF bailout but has yet to make the policy changes required to access the funding. All of these nations—and many more alongside them—are at risk of sovereign debt default. And in all of them, hunger and other forms of economic insecurity are growing rapidly, especially among the poor.
Economic shocks and crises always hit the poor hardest, because, all else equal, risk is more readily and cheaply managed, and even capitalized upon, by those who have more resources and connections on which to draw. Along these lines, the international nonprofit Oxfam published a scathing report this week on widening global wealth inequality since 2020, which includes the graphic below and the following statistic: “Since 2020, the richest 1% have captured almost two-thirds of all new wealth – nearly twice as much money as the bottom 99% of the world’s population.” The report also focuses on declining real wages for workers amidst soaring billionaire wealth, corporate profits in food and energy sectors, and tax reform proposals to mitigate wealth inequality, arguing that the number of billionaires in the world should be halved by 2030. Released just before the World Economic Forum (WEF) meetings began in Davos, meetings attended by prominent billionaires, the report made a splash in international media (see here and here).
(Image: “Share of New Wealth Gained”. From Survival of the Richest, Oxfam, 2023, p. 8, in the original here).
Indeed, international coverage of the WEF meeting in Davos, which began Monday and ends today, ranged from openly critical to downright celebratory, reflecting broad disagreement about the appropriate role of the organization in global affairs as well as about the specific policies and recommendations issuing from the gathering. The meeting’s theme—“cooperation in a fragmented world”— recognized the shifting global political and economic landscape, and the event’s description positioned attendees as “stakeholders” in the creation of “a new global system” that is “equipped to handle the dynamics of the 21st century”. Al Jazeera reported a 'who’s who’ of attendees, available here. It includes high-level government officials from countries around the world and corporate leaders, as well as representatives from international organizations including the IMF, World Bank, WHO, IEA, the UN, and NATO.
Chinese state media predicted that China’s recent economic opening (following years of covid lockdowns and recession) would be “a highlight at the WEF, as the world is in dire need of momentum for both economic growth and globalization”. Recollecting President’ Xi’s 2017 speech at Davos—one that “turned the world upside down” according to some US pundits, because of Xi’s seemingly uncharacteristic support for open markets—Chinese Vice Premier Liu He noted to the Global Times that the Davos forum “is a platform for building consensus on economic globalization”. Indian media discussed the establishment of a WEF Center for the Fourth Industrial Revolution in Hyderabad to focus on healthcare and life sciences. And, while Ukrainian President Zelensky certainly made an impression among attendees with his video appeal for support in the war with Russia, Reuters reported that OpenAI’s new “chatbot”, ChatGPT, was the star of the show.
Things I’m keeping an eye on:
1. Drought conditions: Kenya’s drought just won’t let up. This week, the National Drought Management Authority (NDMA) reported that some 4 million people currently require humanitarian aid and that acute malnutrition is on the rise. In Argentina, drought is seriously impacting soy and wheat yields. Soy exports may be down this year as much as 20%, and economic hardship is expected especially among those farm households unable to harvest a crop.
2. Commodities prices: The EIU commodities report, released this week, is a mixed bag of estimates and predictions. The EIU expects grain and oilseed prices to soften a bit from the recent highs last year but to remain 50% higher, or more, than their pre-pandemic levels. Base metal prices are rising and expected to continue to do so, consistent with my discussion last week. Same for natural rubber and fiber prices. The comments on energy prices are especially interesting: “[P]rices will remain elevated at close to current levels. We expect oil prices to average more than US$85/b in 2023 as OPEC production (including Russia) falls by about 3m barrels/day from its recent peak in late 2022. OPEC unity and commitment to lower production quotas in the face of pressure from Western countries should be watched in 2023….We also do not expect a significant easing of European and US natural gas prices from current levels before 2024. Russian gas supplies to the EU will remain cut off, which will have lasting consequences for the European market…”
3. Sovereign debt: It’s not just Ghana, Pakistan, Lebanon, and Egypt that are running into debt trouble. Yesterday, the US Government reached its borrowing limit (the “debt ceiling”), which will “prompt the Treasury…to take “extraordinary measures”, or “special management steps”, in order to honour its payments,” according to US Treasury Secretary Janet Yellen. She noted that these special measures will likely stave off default only until roughly mid-June.
4. BRICS vs. US and Europe: Lots of interesting news this week, including about the BRICS purchasing gold to undermine the US dollar, the yuan replacing the euro in Russia trading, and Russia’s Rosneft proposing the creation of a natural gas pipeline to China.
5. Government censorship: The Ministry of Electronics and IT in India is considering an amendment to its rules governing information technology that “would bar social media platforms from hosting any information that the authorities identify as false”, reported Al Jazeera. The Editor’s Guild of India, which represents the nation’s newspapers, is opposing the change on the grounds that it will limit press freedom. The opposition party is also opposing the change, calling it a “surreptitious assault on free speech and vile censorship”.
At least the The Ministry of Electronics and IT in India is being upfront about their proposal... and the newspapers and opposition party are opposing the changes...