A diverse confluence of events last week could not have made it more apparent how much the global and South African economic outlooks are ultimately dependent on policymakers getting the good cop-bad cop mix right.
On the geopolitical and trade front, the Brexit can was kicked down the road until Halloween, and the US unexpectedly threatened the EU that it would impose tariffs on $11bn of EU goods, a reminder that trade wars are not off the table. Gopinath says things have changed “quite dramatically” in one year, leaving the world economy in a precarious position, with many downside risks to its already pretty gloomy prognosis. These include trade tension flareups, a no-deal Brexit, macroeconomic policy missteps, cyber attacks on financial infrastructure and geopolitical tensions in the Middle East.
In discussing the pros and cons of cyclical policy changes versus structural policy reforms, Old Mutual Wealth economist Dave Mohrstructural reforms typically have a short-term economic cost as the economy adjusts to the new environment and resources shift around. To do this successfully, a growing economy is needed otherwise the structural reforms may be reversed as the pain becomes too much
However, therein lies the challenge: achieving the right balance of good cop-bad cop policies, with short-term, cyclical policies fostering growth but not creating long-term macroeconomic imbalances and policymakers still gaining headway by implementing structural reform that pays off in the long-term.
In addition to this, the world’s second-largest economy has managed to reduce exports as a percentage of GDP from 32% in 2008 to 18.2% in 2018. It has also begun the shift from an economy dependent on overinvestment to one that is consumption-led, he says. The risk, as always in China, is the potential for politically-motivated reversals in these structural reforms.
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