On 31 July 2017, the Foreign Service Institute hosted a lecture entitled “Post-Hamburg G20: New Alignments or New Divisions” as part of its Mabini Dialogue Series held at the Benedicto Room, Carlos P. Romulo Library, Department of Foreign Affairs. Dr. Dan Steinbock, founder and CEO of the Difference Group, was the guest speaker.
According to Dr. Steinbock, the “great transformation” of the global economy has begun, starting with the synchronized global recession in 2006. From the Group of Seven (G7), global economic governance has now expanded to the Group of Twenty (G20), which includes the leading developed and emerging economies. Projections estimate that the combined gross domestic product (GDP) of BRICS economies will be more than the G8 economies by 2040. Newcomers such as the Philippines, Nigeria, Pakistan, Vietnam, and Iran are expected to be among the top 20 countries in terms of size by 2050.
He gave a review of the outcomes of the G20 Hamburg Summit, which encompassed discussions on issue-areas such as trade, climate, counter-terrorism, and supporting women in developing countries, since these issues have implications on the outlook of major economies.
For the US, a modest recovery of the economy prompted the Federal Reserve to raise rates. However, President Trump seeks to increase spending and implement steep tax cuts which can deepen budget deficits. The absence of a credible, bipartisan medium-term debt reduction plan of the nation’s USD 20 trillion sovereign debt (105 percent of GDP) elevates concerns about the outlook of the US economy. Moreover, many Americans feel that the country is heading toward the wrong direction, and that the US should mind its own business in international affairs.
In the Eurozone, EU economies are experiencing a cyclical rebound but this will be tricky without further fiscal support and investments. The EU is also forced to face a host of lingering problems such as the failed fiscal adjustment, unorthodox monetary policies (e.g., zero interest rate policy and quantitative easing), central bank challenges, and decline of competitiveness and innovation. As for Japan, it is dealing with a possible case of monetary exhaustion, and the Bank of Japan is prepared to counter any appreciation of the yen. The increase in government spending and the delay of the value-added tax (VAT) hike are seen to underpin domestic consumption in 2017. For China, the government is trying to stimulate growth amid a tighter monetary stance by the People’s Bank of China. Efforts to reduce overcapacity along with major market-led reforms, especially on state-owned enterprises and banks, are perceived to be intensified by 2018 with the new set of Politburo. Russia experienced positive growth in the final quarter of 2016, and this growth is expected to continue in 2017. However, recent sanctions levied against Russia have negative effects on its energy trade with Europe.
Consequently, Dr. Steinbock discussed key issues related to the global economy. In particular, both international trade and world investment have been declining. Net migration in developed regions has likewise slowed down since 2010. However, the 65 million people who are globally displaced depict the largest migration crisis since 1945. Equally important areas of concern are the US trade deficit, the apparent China-led globalization as evidenced by the Belt and Road Initiative, and massive free trade agreement (FTA) plans such as the Regional Comprehensive Economic Partnership (RCEP) and the Free Trade Area of the Asia-Pacific (FTAAP). Furthermore, states and international organizations must contend with other critical issues such as climate change, counter-terrorism, militarization, and the North Korea threat.
Lastly, Dr. Steinbock provided economic scenarios and outlook for the US, EU, G20, and the Philippines. He believes that the US will witness rising deficits and greater economic and military spending. The downside risks for the country include political friction, which may dampenbusiness confidence, investments, and consumption, as well as rising protectionism, trade/currency wars with major partners, and worsening financial conditions. On the other hand, the uncertainty surrounding post-Brexit may lead to the ‘Germanification’ of Europe wherein Germany serves as the economic engine of the said bloc. Downside risks to EU include financial stability concerns, geopolitical risk from Syria, Greece, and Ukraine, low level of coordination among EU members, and the slowdown of China which negatively impacts the Eurozone.
Dr. Steinbock foresees a ‘muddling through’ scenario for G20 countries over the period 2017 to 2025. He outlined four scenarios, namely, global synchronicity, global deceleration, pockets of growth, and rolling regional crises. Global synchronicity, or rapidly globally distributed growth, and global deceleration, or low but more stable global growth, occurred during 2008 until early 2010s when the global economy was converging. In contrast, the latter half of 2010s witnessed pockets of growth, or uneven, volatile, but high global growth in conjunction with rolling regional crises, or volatile and weak global growth, which indicated a diverging global economy. In the Philippines’ case, the government would need to accelerate investment mainly for infrastructure needs, effectively distribute the wealth domestically, and rebalance regional growth which is currently concentrated in the National Capital Region (NCR).
The forum was attended by representatives from government agencies and academe, students as well as officials and staff of the DFA and the FSI.