2023: The return of the Great Moderation

With new findings about the sheer pace and scale of glacier melt in Antarctica and Greenland, the year also shed a harsh light on the damage – much of it irreversible –that climate change is wreaking on the planet. And with Chinese President Xi Jinping securing a precedent-breaking third term, China will continue its backward march to Mao-style dictatorship.

More broadly, dangerous global developments – including the COVID-19 pandemic, the apparent reversal (or at least plateauing) of globalization, and high and unsustainable debt burdens across developing and emerging economies – continued in 2022. The spasms of political instability and civil disorder seen in Sri Lanka, Lebanon, Ghana, and Suriname may be a harbinger of similar turmoil elsewhere.

As for the broader threat to democracy, 2022 offered grounds for both optimism and concern. Notwithstanding a few hiccups, Kenya held a successful presidential election and completed a peaceful transfer of power – offering some hope for others in the region. In the United States, the January 6 Committee revealed in startling detail just how close former President Donald Trump came to orchestrating America’s first-ever coup after his electoral loss in 2020, though subsequent polls showed that the committee’s work had little impact on public opinion.

Meanwhile, in France, President Emmanuel Macron won re-election against a far-right populist but lost the parliamentary majority that his party had commanded during his first term. In Brazil, voters signaled their discontent with President Jair Bolsonaro. But, taking his cues from Trump, Bolsonaro has proved utterly contemptuous of democratic norms or the people’s will. And in Italy and Sweden, far-right parties came to power, confirming the enduring appeal of populist-nationalist forces for many voters.

Finally, with the rapid tightening of monetary policies, an extraordinarily long honeymoon for business, finance, and tech finally ended. Bubbles have burst, and many business models have been exposed as unviable in the absence of ultra-loose financial conditions and seemingly limitless liquidity. Supply-chain disruptions, new sanctions and national-security measures, labor shortages, and other factors are posing challenges even for the strongest, most well-established businesses. The so-called Great Moderation, which policymakers worked to prolong after the 2008 global financial crisis, appears to be gone for good. Like it or not, the year ahead is certain to reveal more of what that means.

Resilient trade will strengthen economic dynamism and provide economic stability

Economies across the world have been strained by the events of the last three years. The covid-19 pandemic claimed millions of lives and brought the world economy to a standstill. Russia’s brutal war has taken a devastating toll on lives and infrastructure in Ukraine, generating seismic repercussions for oil and food prices at a time when the global economy was finding its footing.

Looming above these crises has been climate change. Severe droughts and floods have disrupted agricultural capacity and exacerbated energy shortages around the world. These disruptions have resulted in severe shortages of key goods—from lumber to microprocessors to food and fuel—that have in turn slowed global growth and contributed to high inflation in many economies. In the developing world, we have seen a rise in poverty for the first time in decades. Read More 

The year when strain in China-US relations divided the world right down the middle

Any effort to looking ahead at Sino-American relations in 2023 will uncover a landscape of uncertainties. There is not only the paramount strategic goal of maintaining peace across the Taiwan Strait but also China’s often fraught relations with other powers such as Japan, South Korea, Australia, India, and Europe, as well as its ties to wayward friends such as Russia. And beyond these, there is the question of whether the Chinese economy lands safely or crashes in the year ahead.

The work report delivered by President Xi Jinping at the Communist Party of China’s 20th National Congress in October makes clear that Chinese economic policymakers will emphasize the state-owned enterprise sector, party control, national economic self-sufficiency, and a new emphasis on wealth redistribution in 2023 and beyond. This involves considerable policy correction from the emphasis on market forces, the private sector, and full international economic integration that we saw in previous decades under Deng Xiaoping, Jiang Zemin, and Hu Jintao. Read More

Will the central banks do what it takes?

The advanced economies are experiencing their highest inflation in 40 years, with a median rate of nearly 9% for the 12 months ending in September 2022. For central banks and financial markets, the expectation – or, more accurately, the hope – that the inflation spike would be transitory has been broadly replaced by the sobering realization that price growth is a persistent problem that demands significant and sustained monetary tightening. With the exception of the Bank of Japan, the major central banks are now raising interest rates and moving to stabilize or reverse balance-sheet growth.

Few would doubt that, after 15 years of exceptionally low interest rates, this policy shift will be difficult, especially with the global economy teetering on the edge of recession. But with 2023 expected to bring heightened global financial and economic risks – not to mention rising geopolitical tensions – it will almost certainly become even more complicated. Read More

After covid-19, now a pandemic of debt

The covid-19 pandemic increased low- and middle-income countries’ debt levels to a 50-year high. With soaring inflation, rising interest rates, and the strengthening US dollar compounding their debt-service burdens, a crisis is now unfolding in several countries of the developing world.

The Economist has identified 53 vulnerable countries that have either defaulted on their debts or are at high risk of debt distress. While it is true that most of these countries are among the world’s poorest, a growing number of middle-income economies are also facing severe debt problems. According to the World Bank, nearly 60% of all emerging and developing countries have become high-risk debtors. Read More

The need to unite for humanity and face year ahead with firm sense of confidence

How can we be optimistic about 2023? As we enter the new year, a devastating war is raging on the European continent. Russia’s war of aggression has slashed a devastating wound far beyond Europe, exacerbating a food and energy crisis in large parts of Africa, the Middle East, and Asia. More than 800 million men, women, and children go to bed hungry every night. The climate emergency is deepening this pain, stirring conflict worldwide, and robbing people of their land, their homes, and their security.

How can we be optimistic in such frightful times of uncertainty? I strongly believe that, as responsible world leaders, we simply have no other option than to face the next year with a firm sense of confidence that we can drive change to improve people’s lives. Not despite this “perfect storm” of crises—but because of it. Read More

Unfortunate return of the end of history

Thirty years after Francis Fukuyama published his famous book, The End of History and the Last Man, history returned with a vengeance. Following Russia’s unprovoked invasion of Ukraine, Europe is once again the site of a large-scale war that is so characteristic of the twentieth century that no one expected to see anything like it today. 

Far from the “clash of civilizations” that political scientist Samuel Huntington anticipated would shape the twenty-first century, Russia wants to eradicate an independent country with a similar ethnolinguistic and religious background. The conflict is primarily about different political systems: autocracy versus democracy, empire versus national sovereignty. Read More

There are lessons to learn from Ukraine

In extraordinary times such as wars, pandemics, and natural disasters, all politicians introduce extraordinary measures to soften the negative economic and social impact on their country’s citizens. But only the best among them will do so with the future in mind, helping to create the conditions for longer-term prosperity. As the late Queen Elizabeth II put it, “What leaders do for their people today is government and politics. But what they do for the people of tomorrow—that is statesmanship.”

Owing to the fallout from Russia’s invasion of Ukraine, many governments today are acting as if they are also at war. But they have failed to heed the queen’s implicit advice because short-termism has become all too common in economic decision-making. Read More

Striking a fine balance between economic policies and delivering human well-being

As 2023 begins, it is clear that an ever-growing number of people hold democratic capitalism in disrepute, and economists along with it. But how much responsibility—and what kind—do economists bear for our economies’ ills?

In 2010, an influential, Oscar-winning documentary portrayed us as scoundrels concerned only with our own financial gain, and as lobbyists and apologists for the rich, who reward us generously for our work. Our pronouncements are often predictable from our politics. Whenever several hundred economists sign a petition in support of some policy, it is only a matter of days before several hundred other economists sign a petition condemning it. Read More

Working-age population on the decline

Since 2011, sales of adult diapers in Japan have outpaced those for infants, reflecting a decline in the country’s fertility rate (live births per woman) from 3.66 in 1950 to around 1.5 by the early 1990s. Since then, Japanese fertility has remained stuck far below the “replacement rate” (2.1), amounting to a mere 1.3 in 2021.

And geriatric Japan is not alone. Fertility rates have also dropped below the replacement level in all eurozone countries, and they are strikingly low in Hong Kong, Macao, Singapore, South Korea, and Taiwan—the five wealthiest East Asian economies, omitting China. At 0.81 and 1.38, respectively, South Korea and Hong Kong’s 2021 fertility rates are among the lowest in the world. Moreover, China is likely to record an absolute decline in its population in 2023. Read More

The political threat to well-being today

Economics has been called the dismal science, and 2023 will vindicate that moniker. We are at the mercy of two cataclysms that are simply beyond our control.

The first is the covid-19 pandemic, which continues to threaten us with new, more deadly, contagious, or vaccine-resistant variants. The pandemic has been managed especially poorly by China, owing mainly to its failure to inoculate its citizens with more effective (Western-made) mRNA vaccines. Read More

The problems that sank Soviet economy are now threatening to scuttle China’s

The 20th National Congress of the Communist Party of China (CPC), held this past October, confirmed President Xi Jinping and China’s top political leadership for the next five years. But what that means for the Chinese economy going forward will depend on three factors: the state of the country’s institutions, past and current economic conditions, and the leadership’s political intentions.

China’s most fundamental institutions are totalitarian, reflecting and reproducing the CPC’s monopoly control over every facet of society, including the economy. The party-state institutions of totalitarian control were transplanted, in full, from the Soviet Union in 1949. While Soviet-style totalitarianism collapsed three decades ago under the dead weight of its economic failures, China appeared to be an exception. The question now is whether China’s own totalitarian experiment can last. Read More

The Ukraine war and its fallout on Asian security

Russia’s war of aggression against Ukraine has prompted people across the Indo-Pacific region to ask if hidden or openly festering problems here could also lead to open warfare. Following China’s hysterical response to US Speaker of the House Nancy Pelosi’s visit to Taiwan in August, the answer seems all too clear. From the Hindu Kush to the South China Sea and the Korean Peninsula’s 38th parallel, the Indo-Pacific has no shortage of deep historical antagonisms and false claims to sovereignty that could explode into conflict without warning.

The real question facing leaders across the Indo-Pacific, then, is whether the region can build a structure of peace to prevent national ambitions and hostilities from escalating to open warfare. Much will depend on whether the region’s democratic powers—Australia, India, Indonesia, Japan, South Korea, and the United States—can forge the type of strategic trust needed to make any potential disturber of the peace think twice before initiating hostilities. Read More

Waging a war with populism

Russia may no longer be the totalitarian society that my great-grandfather Nikita Khrushchev ruled six decades ago, but totalitarianism seemingly remains in its DNA. The Kremlin still invents its own reality, no matter how absurd or impossible, and demands the people’s credulity.

If war was peace in the Oceania of George Orwell’s 1984, President Vladimir Putin’s “special military operation” is practically a form of peacemaking in the Russia of 2022. The invasion of Ukraine on February 24 certainly was little cause for concern for Russia’s urban middle class, who continued to party like it was 2004—the heyday of President Vladimir Putin’s oil- and gas-driven economic boom—as Russian tanks rolled across the border. Read More

The global struggle for tech mastery

The past year offered some old lessons about great-power competition. But it also introduced some new ones about how technology is changing the strategic terrain.

There is no longer any doubt about the challenge that China, Russia, and other authoritarian regimes pose to international rule of law, respect for sovereignty, democratic principles, and free people. These threats have grown as China and Russia have harnessed new technologies to surveil populations, manipulate information, and control data flows. They are setting an example for how authoritarians can further clamp down on freedom of thought, expression, and association. Read More

Navigating economic perfect storms

During the opening of the summit of G20 finance ministers and central-bank governors on October 12, 2022, I warned that the world is facing increasing and compounding risks from high inflation, weak growth, energy and food insecurity, climate change, geopolitical fragmentation, and rising debt distress. Low-income countries will bear the highest burden, but also middle-income and even advanced economies face the prospect of substantial pain.

The global economy has been heading into a perfect storm. The covid-19 pandemic has left scars on all our economies, precipitating a drop in aggregate demand and then aggregate supply. The symptoms are similar to those of a “liquidity trap,” with third-party funding in the financial sector remaining high while the real economy stagnates. Read More