Chongyang Institute for Financial Studies at Renmin University of China (RDCY), ends the year with a list of the top ten international events in 2022, and makes an analysis on the global macroeconomic situation in 2023!
I. Five Difficulties. Humanity suffers from the most difficult development situation in 2022 since the end of World War II , will the situation get better in 2023?
Health Crisis. From Director-General of WHO, 2022 has been a challenging year for the health of the world's people and the virus will not go away and will stay, while only one in five people in low-income countries has been vaccinated and there are inequalities in access to treatment for COVID-19. Only half the world's population has access to safe sanitation services. Climate change. According to the WMO's Global Climate Report 2022, concentrations of major greenhouse gases reached record levels again in 2021 and continue to rise in the atmosphere in 2022. Food Crisis. According to the WHO, nearly one-third of the world's population faces moderate or severe food insecurity. The main causes of the food crisis include high fertilizer prices and a shortage of fresh water resources. Refugee Crisis. 7.7 million refugees from Ukraine have been registered across Europe, and the United Nations, European countries and some international rescue or aid organizations, generally consider this a refugee crisis. Global inflation. The IMF expects global inflation to rise from 4.7 percent in 2021 to 8.8 percent in 2022 and to remain at 6.5 percent in 2023. High inflation will significantly push up the cost of production and living in all countries, interfere with the confidence of market players on the supply side, and weaken the consumption ability of people on the demand side, and make market sentiment negative, which will directly affect economic development. How to pull the world economy on the recovery track needs countries around the world to strengthen cooperation and joint efforts.
II. Tens of thousands of sanctions. The crisis in Ukraine triggered the most severe economic and financial sanctions ever imposed on Russia by the U.S. and Europe in 2022, will the sanctions increase or slowdown in 2023?
The sanctions and counter-sanctions have led to a rapid cooling of economic and trade relations between Russia and the West, a further imbalance between supply and demand on the global market, and a push up of prices in related fields and products, including a sharp spike in energy prices, which has plunged the world into an inflationary quagmire. The game of sanctions and counter-sanctions between Russia and the EU in the energy sector has a significant impact on the EU's energy supply. With the deepening political confrontation between Russia and the West, Russia's pipeline gas deliveries to Northwest Europe have seen a significant decline. Under the multiple influences, European countries are facing a serious energy crisis this winter.
III. Difficulty of G20 mechanism. The Russian President Putin did not attend 2022 G20 Bali Summit, and the process of the final Leader’s Communique text is difficult. Will global governance mechanism operation recover in 2023?
Global governance mechanism remains in a difficult situation in 2022. First, the Russia-Ukraine conflict has amplified the rift between the participants of the global governance mechanism. The outbreak of the Russia-Ukraine conflict made the developed countries represented by the U.S. and Europe adopted unprecedented sanctions against Russia and asked other countries to take a stand. Second, the aggressive monetary policies of the U.S. and Europe have triggered new global economic problems reflecting the failure of global governance. Due to the adoption of super conventional stimulus policy measures during the pandemic, especially massive monetary over-issuance, with the rise in food and energy prices indirectly brought about by the Ukraine crisis, the U.S., Europe and other developed countries experienced serious inflation. Third, the global governance mechanism represented by the G20 is powerless in the face of climate change issues. Climate change is a multifaceted and complex issue involving political, economic, energy, social and ecological fields, and the international community is slow and ineffective in responding to this issue. Fourth, the current global governance mechanism can hardly solve global development problems. The recovery of global imbalance favors regional and global powers to further strengthen their advantages in the global governance arena, while most developing and less developed countries have few voices for them and become more alienated from global governance, making the problem of global development imbalance more prominent. The existing international mechanism represented by the G20 has increasingly revealed its governance shortcomings in the face of the pandemic and the complex global situation in the context of the great power game. G20 will be held in India in 2013, India may also pay more attention to development issues and put forward some issues involving developing countries and emerging market countries, which is worth looking forward to.
IV. Dollar privilege. Agressive Fed rate hike in 2022, negative spillover effects, will bankruptcy appear in 2023 like Sri Lanka and other countries?
The tens of thousands of U.S. and European sanctions against Russia have more firmly accelerated the confidence and process of Russia's de-dollarization. Besides, along with the negative spillover effect brought by the Fed's aggressive rate hike, more countries have joined the team of de-dollarization. On the other hand, in the world's trade, foreign exchange reserves, investment and other areas, the U.S. dollar occupies considerable weight, so the impact of the dollar liquidity tightening should not be underestimated. Financial crises caused by Fed rate hikes are often accompanied by capital outflows, and the most common result is often a currency crisis. In such crises, the currency crisis is usually characterized by a debt crisis or the bursting of an asset bubble, and this in turn causes a further devaluation of the national currency, which exacerbates the debt crisis, as well as a complete collapse of the financial markets. Logically, the outbreak of such financial crises is triggered by the "Fed Rate Hike" as an external precursor, while the internal problems of the economy are the main factor. For emerging economies, it is more important to beware of asset bubble bursting, debt crisis and other forms of crisis. Special attention needs to be paid to the construction of foreign exchange reserves, bank reserves and other economic resilience. In the current context of high global inflation and the Fed's interest rate hike, China should still analyze the lessons learned from other countries, solidify our economic resilience, prevent the transmission of financial risks outside the country, and effectively resolve our internal risks.
V. RCEP leads to new globalization. RCEP, the world's largest free trade area has officially come into effect in 2022. What is the trend of deep integration of regional industrial chain and supply chain in 2023?
On January 1, 2022, the Regional Comprehensive Economic Partnership (RCEP) officially came into effect, marking the official landing of the world's largest free trade area. The population, GDP and trade volume of RCEP members account for about 30% of the world's total, far surpassing that of the United States, Mexico and Canada Free Trade Area (USMCA) and the European Union, making RCEP a booster of new globalization, a new engine for Asia-Pacific trade and economic development, and a catalyst for regional industrial chain and supply chain integration.
Compared to the USMCA, the RCEP is more inclusive, open, modern and comprehensive. Since the implementation of the RCEP, China has made positive progress in trade and investment with regional member states, unleashed the growth potential of intra-regional trade and investment, and further improved regional economic integration. RCEP has accelerated the deep integration of industrial chains and supply chains in the region. In recent years, the Asia-Pacific region's participation in the global industrial chain has continued to increase, with an average annual growth rate of 4%. Within the RCEP region, China's industrial system is complete and well-supported, and it is highly linked to the industrial chains of Japan, the ROK and ASEAN, forming a virtuous cycle of industrial and supply chains. According to UNCTAD projections, tariff rates under the RCEP will be reduced by an average of 9 percent. In the long run, the gradual reduction of tariffs combined with a series of facilitation policies and measures will expand market access in the region, accelerate the flow of production factors, promote closer and smoother industrial and supply chains in the region, and promote the construcition of a large unified market in the Asia-Pacific.
VI. The Arab States Rise? The first China-Arab States Summit and the China-Gulf Cooperation Council (GCC) Summit in 2022 will help the Arab world. How Will the Arab world shape global governance in 2023?
Most of the stadiums and World Cup merchandise in Qatar were made in China. On December 9, the first China-Arab States Summit and the first China-Gulf Cooperation Council (GCC) Summit were held in Riyadh, capital of Saudi Arabia. At the summit, China proposed eight major cooperation initiatives in areas including development support, food security, public health, green innovation, energy security, inter-civilizational dialogue, youth development, and security and stability. The two sides should strengthen synergy between the Belt and Road Initiative and Saudi Arabia's Vision 2030, and build a China-Arab community with a shared future in politics, economy, security and culture. China-Arab cooperation has not only become a model of South-South cooperation, but also achieved historic leaps in breadth and depth.
Unlike the breakdown of US-Saudi relations, China-Arab cooperation is getting closer and is rewriting the process of global governance. China is now the largest trading partner of Arab countries. As the largest Arab country, Saudi Arabia has been China's largest trading partner in the Middle East for more than 20 years in a row. The United States has used petrodollars as a powerful tool for global governance through forced binding of oil, but the practice of putting American interests first has failed in global governance, and petrodollars are in jeopardy. In addition, the de-dollarization of countries including Russia is accelerating. The Chinese initiative of jointly building the Belt and Road has been widely welcomed by Arab countries. The holding of the summit shows that the Arab countries, represented by Saudi Arabia, are realizing the development path of their own choice, rather than being the vassal of any other country.
VII. The total collapse and reversal of the colonial system? India's GDP has surpassed that of UK in 2022 and an Indian origin are elected as British Prime Minister. The colonial system built by Britain, once the largest colonial empire in human history, will be completely collapsed in 2023?
In 2022, there are two events that make people think about the reversal of the colonial system. First, according to the statistics released by the IMF, India's GDP has surpassed that of the UK in 2022 and become the fifth largest economy in the world. The second was the election in October of the Indian-born Sunak as British prime minister. It is thought-provoking that the two incidents occurred in the same year. In contrast to Britain's declining economic position, its former colonies are on the rise. While the IMF lowered India's 2022 growth forecast to 6.8% from 7.4% previously, it is still higher than most developed European countries. In the 21st century, India, once a British colony, has shown an economic growth rate and potential that exceeds that of the master country. It can be said that the colonial system has completely collapsed or even reversed, which has brought considerable variables to the global situation in the 21st century.
If the key word to deal with colonialism is independence, then similar to the anti-colonial independence movement in the last century, to deal with the financial colonization of the 21st century with the help of monetary hegemony and a series of financial means, we also need to rely on independence, one is the independence of the energy system and energy security, the other is the integrity and autonomy of the industrial chain and supply chain, and the third is to enhance the international status of the national currency. The collapse and reversal of the colonial system is actually a subtle struggle for the power of discourse and even the reshaping of rules. Only by grasping the right direction of industrial upgrading, international cooperation and opening up to the outside world can we help to continuously find our own advantages.
VIII. BRICS start again! As the BRICS chair in 2022, China plays its role in the “BRICS+” mechanism. How will international organizations such as the BRICS and the SCO, where China plays an important role, step up their efforts in 2023?
The year 2022 marks the 16th anniversary of the establishment of the BRICS cooperation mechanism. In the middle of this year, the share of BRICS countries in the world economy in purchasing power parity terms has steadily increased from 31.5% to 31.6%, marking the 30th consecutive year of growth. Trade among BRICS countries has maintained a high growth rate. At present, emerging international and regional organizations represented by BRICS and the Shanghai Cooperation Organization (SCO) have become more and more distinctive, and are showing greater vitality and attractiveness. Saudi Arabia and other countries have expressed their desire to join BRICS.
Looking forward to 2023 and the next 15 years, the BRICS cooperation mechanism will gradually mature from growth. BRICS countries, which account for 26.46% of the world's total land area and 41.93% of the world's population, will continue to increase their influence in the world's economic and political life in the future and become a mainstay of world security and development. Although in 2022, due to the interference and influence of factors such as epidemic, war and global monetary policy tightening, the overall economic growth of BRICS countries is lower than that of 2021. However, with the continuous reduction of the adverse impact of COVID-19 on the world and the gradual resolution and alleviation of regional war crises, BRICS countries will unleash more abundant economic vitality in the future.
IX. The Japanese shock? Japan's economy suffers multiple difficulties in 2022, Abe's assassination, the collapse of the yen, and the possible withdrawal of Japan's quantitative easing policy in 2023. Will it trigger a financial tsunami?
In 2022, the Bank of Japan (BOJ), which still maintains a negative interest rate, finally faced inflation due to its long-term quantitative easing policy. Excluding fresh food, consumer prices rose 3.7 % in November from a year earlier, which is the biggest increase since December 1981. Core CPI, which strips out fresh food and energy prices, rose 2.8 % in November from a year earlier, exceeding the BOJ's 2 % inflation target for eight consecutive months. Target of 2% is one of the many goals of the three arrows of Abenomics.
The BOJ is considering easing its longstanding policy of quantitative easing amid inflationary pressures. It may change its loose monetary policy after Governor Haruhiko Kuroda steps down in 2023. On Dec. 20, the BOJ widened its target range for benchmark government bond yields by 50 basis points. Previously, the BOJ maintained its yield curve control policy by buying government bonds. As a result, the move was interpreted by markets as the first step in unwinding a decade of massive monetary easing. Following the interest rate hike of many countries, Japan's monetary policy shift in 2023 has become a highly probable event, which will have a huge impact on Japanese and global financial markets.
X. Dealing with the twists and turns of climate Change? At COP27 in 2022, countries agreed to establish a "Loss and Damage" Fund. What will be the impact of a pilot carbon tariff on imported goods in the EU in 2023?
In November 2022, representatives of nearly 200 countries at COP27 in Egypt agreed to set up a "loss and damage" fund aimed at helping vulnerable countries better cope with climate disasters. If it is implemented, this means that developed countries, including the US and Europe, will actually put money on the table to support other countries, particularly developing countries, that are suffering the effects of climate disasters.
But it is still unclear how the fund will operate in the future, and the text of the agreement still leaves many questions, including how it will be financed. However, the text of the agreement mentions that a transitional commission will be estabilished to gradually confirm these details . In In fact, as early as 2009, during the COP15 in Copenhagen, countries already reached a consensus on "common but differentiated responsibilities", and agreed that developed countries should provide 100 billion dollars of climate aid to developing countries every year. However, from the follow-up progress, this fund is still up to 20 to 30 billion dollars short. In view of this, The "loss and damage" fund established by COP27 may still face problems such as unstable funding sources and fund deficit in the future, and even become a new issue to be discussed and argued at the future Conference of the Parties.