The advent of Omicron adds another adverse factor to global economics. The UK seems hardest hit, and the US also looks seriously worrying. It has been asserted that there may be faster transmission but gentler effects. Time will tell.
Global inflation is up, for the US 6.8 % and the UK 5.1 % I seem to recall. The US Fed’s Mr Powell seems to have admitted inflation is worse than previously thought and may require some deflationary action. The UK ditto. But Australia’s own Philip Lowe still seems hanging on to near zero cash interest rates, with a slight caveat that suggests interest rates may need to rise in 2023 rather than 2024. I will be very surprised if life is that easy at the top end of Martin Place.
The Executive director of the Centre of Independent Studies, Tom Switzer, today presents a paper suggesting ‘Dark Times ahead’. He lists four negative factors likely to make the global economy far worse than the general cheer of the past 30 years. I will merely list his four negative issues, and strongly commend the article in The Australian today.
1. ‘The first crisis, obviously, is the once in a century pandemic that shows no sign of abating.’
2. ‘The second crisis has been the inflammation of “cancel culture” – the phenomenon in which anyone in public life, the media or academe, runs afoul of the extremist leftist orthodoxies of a militant and vocal minority’.
3. ‘Third, Western leaders are hell-bent on reaching net-zero emissions within three decades – a radical shift from cheap and reliable coal, gas and oil to expensive and unreliable renewables’.
4. ‘The final great challenge is geopolitical: the strategic and economic competition between the two great nuclear powers, China and the US, is likely to be the defining feature of international relations in coming decades and it’s mainly going to take place in our neighbourhood’.
Relative to these powerful hypotheses, a bit of inflation is presumably not highly relevant. Australia’s employment growth is good news, yet if inflation is out of control in the major nations, interest rates will need to rise noticeably. There will be a flow on, even to Mr Lowe’s happy Australians.
My own concern is that this is likely to become a fifth wheel on the scary world economy. I’d be far happier myself if cash interest rates had been set at a minimum of 3 % and if budget deficits were rather smaller – including as well as the Federal budget deficit those of most states.
Who am I to provide such advice? A retired economist who now paints pictures and in his other time works on a major project of a serious model of the British economy. Time will tell.
I wish all my readers, and Mr Lowe and his staff, a happy Christmas and a cheerful New Year.