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Global Economics 2/12/24

Updated: May 5

Welcome to the first edition of Global Economics Brief, CEE’s weekly guide to the markets, policies, and politics moving the international economy. The newsletter will roundup key developments across our focus areas to ease and accelerate coverage of relevant stories.

Starting out we would would love to hear from you with any ideas or feedback.

By Evan Nanaj, Patricia Diaz, and Ken Stibler


Week in Review

This week’s events were dominated by reminders of accelerating complexity. Markets and economies are becoming more fragile from a proliferation of risks and changes. The ongoing Red Sea saga and its increasingly costly consequences demonstrated how political and geopolitical noise makes it more difficult to distinguish signal from noise and structural from cyclical.

With 2024’s election heavy year, political-driven confusion in just starting to rise. Elections in Pakistan are an advance warming of the noxious and increasingly common mix of emerging tech, economic crisis, and domestic political fragmentation.

So far, fallout appears localized - more irritant than systemic shock. But are these merely magnified cycles or harbingers of deeper structural change? From long-term labor automation to a reversal of globalization, the background buzz makes separating cycles from secular shifts difficult. And the scariest thing about current disruptions isn’t our ability to respond to any one of them but our institution’s ability to even understand such cross-functional cross-silo changes.


Trend Line

Global Macro: Economic policy becomes an increasingly common tool for conflict

The international policy set in cities like DC and Brussels is slowly warming up to the defense significance of economic policies. However, the weaponization of economic policy is already on the rise around the world. As geopolitical tensions flare, countries are increasingly using their financial and commercial systems as tools of conflict rather than cooperation. This represents a concerning shift away from the post-war economic order and toward the fractured, protectionist regimes that defined the pre-WWII era.

Financial Markets: Regulator’s wake up to shadow banking risks

Private credit has become the financial trade of the decade, delivering mid-teen returns much higher than public markets. In response, US bank loans to lightly regulated shadow banks like private equity and fintech lenders have sailed past $1 trillion, raising alarms among regulators about hidden systemic risks in what many believe will be the driver of the next 2008.

Developed Economies: Bad policy compounds China’s structural slump 

China's economy shows increasing signs of deflationary pressure as consumer prices sink at the fastest pace in 15 years. January's 0.8% year-over-year CPI drop underscores a confluence of negative forces - excess housing, squeezed private firms, and wavering confidence. With GDP growth diverging downwards from official targets, Beijing faces a policy reckoning.

Emerging Economies: Emerging market macroeconomic risks change natural gas market structure

Natural gas markets are shifting from short-term spot market trading toward long-term contracts as developing economies seek to lock in supply and avoid macroeconomic instability. Major LNG importers like India and Brazil now aim to supplement spot purchases with 10-20 year offtake deals. Though spot prices are retreating from 2022's record highs, importers were burned by recent shortages and are willing to pay for insulation from volatility.


In Other News

Drew Hinshaw and Daniel Michaels, Wall Street Journal

Open oceans allowed a global economy to emerge from the wreckage of two world wars, lifted billions from poverty, and underpinned the US economy’s dominance. However, disruptions near critical shipping chokepoints have altered routes and jeopardized global trade. Climate change, geopolitical risk, and asymmetric warfare is pushing shipping costs in key routes to pandemic-levels.

Dani Rodrik and Robert Armstrong, Unhedged

“The rationale for industrial policy is really no different from the rationale for [interventions in] health or macroeconomic stabilization or education. Whether it’s fixing externalities or providing public goods, the economic rationale for industrial policy is very strong. No applied economist would deny the prevalence and significance of market failures that result in economic underperformance. So the debate is really about loose political economy arguments of “ government can’t pick winners”, or “governments get captured”.”

El Economista

Mexican exports to the US surpassed China with Vietnam also rising substantially. However, with Chinese exports through both countries rising, the falling trade deficit with Beijing is more on paper than in practice.

Eric Wallerstein, Wall Street Journal

Investors’ expectations for rates tend to be anchored to their recent memory, and Wall Street has been caught offside in both directions while betting on the path of interest rates over the past few years. Those bets have widespread consequences on borrowing costs and stock prices by changing the competition bonds pose for investors’ dollars. 

Paul Hannon and Yuka Hayashi, Wall Street Journal

Thanks to robust growth and its relative insulation from geopolitical crisis, the U.S. economy has left Europe behind. Higher EU borrowing costs had compounded the earlier impact of higher energy prices in the wake of Russia’s invasion of Ukraine. Meanwhile, the US has been expanding robustly and enjoyed its strongest performance relative to the eurozone since 2013.

Joseph Cotterill, Financial Times

Kenya issues $2bn in new dollar-denominated debt, joining other stronger emerging markets which are taking advantage of a retreat in interest rates to refinance. The plan to refinance at least part of the debt in the markets will help allay uncertainty over Kenya’s ability to repay the bond, after a sharp drop in the Kenyan shilling against the US dollar, stretched forex reserves, and fiscal pressures left the country with diminished resources.


What We're Reading

We are too obsessed with monetary policy: This cycle reiterates that interest rates are a blunt tool to guide the economy. (FT)

U.S. nears half of global stock market cap as Alibaba, Tencent falter. (Nikkei)

Europe’s financial sector is a drag: The bloc’s financial heart is weak, struggling to pump sufficient capital to support companies and the economy. (FT)

After the Biden administration echoes Trump’s restrictive trade views, European officials worry about America’s Protectionist. (WSJ)

ECB hints at greener monetary policy in new climate plan. (Reuters)

CBO Warns 2025 Debt Interest Costs to Exceed World War II Levels. (Bloomberg)

Trump Says He Would Not Reappoint Powell as Fed Chair if Elected. (Bloomberg)

Japan to make it easier to revoke foreigners' permanent residency: Taxes, pension and health insurance premiums must be paid to retain status. (Nikkei)

China gold purchases soar 30% on economic anxiety: Central bank and individual investors seek stability amid geopolitical risks. (Nikkei)

Free lunch, free internet: Indonesia candidates defend election pledges. (Nikkei)

Exclusive: UAE wealth fund plans $4-5 billion in investments via India's new finance hub - sources. (Reuters)

Fundamentals take time Milei doesnt have as Argentine inflation surges on normalizing reforms. (America’s Quarterly)

US Pressure on Russian Oil Sees Dark Fleet Turn to Gabon’s Flag. (Bloomberg)

Nigeria ‘repays’ foreign airlines, rebuilds confidence. (The Africa Report)

Thailand’s PM clashes with central bank governor over $14bn handout plan (FT)

Bangladesh weans garment industry off subsidies for new-look economy (Nikkei)

New Liberian President Orders Audit of Central Bank Under Weah. (Bloomberg)

Ecuador ratifies free trade agreement with China. (BNAmericas)

Latin America’s private sector is failing the region, economist Mazzucato warns. (FT)

Brazilian Corporates Benefit from Positive Credit Supply in 2024. (Fitch)

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