Geopolitical and financial risks continue to mount, threatening to create new crises out of the crises that the world has endured in recent years. The risk of complete US-China decoupling – which would undoubtedly have a huge ripple effect on global growth – has heightened in the last several weeks as national security has taken priority over economic interests. On the US financial horizon, a commercial real estate crisis may be looming as more landlords default due to the widening gap between rent prices and borrowing rates. Europe continues to deal with the war in Ukraine and its wider regional consequences: As Russia and Putin’s allies continue to threaten European democracy and stability, can the European Union rise to the challenge? Finally, resource-rich Latin America is becoming a critical player in the green revolution whether investors like its political and business environment or not.

The Global Economy’s Geopolitical Timebomb

Yu Yongding, Zhang Jun, Nancy Qian, Nouriel Roubini, and Stephen S. Roach, Project Syndicate

Read the full article here

The Chinese government is shifting gears as geopolitical tensions rise and domestic economic dynamics take shape. During the lockdowns under China’s Zero-Covid policies, Chinese GDP dropped significantly. Yet, as the country has come out of the lockdown era, the government has the space to exceed its target of 5-5.5% GDP growth through engaging expansionary monetary and fiscal policies and thereby garner as much as 6% GDP growth in 2023. While 6% is a step up from expectations, it is nonetheless in line with the trend of falling GDP growth over the past two decades. In fact,lower GDP expectations are part of a broader Chinese government policy of shifting away from GDP growth at all costs (including environmental harm) to an emphasis on job creation and macroeconomic stability. This is in part due to domestic considerations, such as the rapid rise of urban labor, especially in the high-tech and service sectors, and in part an attempt to insulate from the geopolitical risk that continues to rise, particularly with the US.

In fact, the US Senate has recently unveiled bipartisan legislation to ban those associated with adversarial governments from purchasing US farmland on the basis of national security. Concurrently, the Biden administration is preparing to release restrictions on Chinese investment in the US and US investment in China. These moves are therefore the latest in an ongoing degradation in relations, with security becoming the priority over economics, a position recently staked out explicitly by Secretary Yellen. Should this trend continue, there exists a risk of economic bifurcation due to decoupling between the US and China, with the International Monetary Fund (IMF) expecting a reduction in global growth by as much as 2% in the long run. The result, therefore, is slower growth not just for China, but for countries across the globe, including the US.

Is a Commercial Real Estate Crisis on the Horizon? 

Commercial Real Estate Market Faces Next Wave of Financial Stress, Apollo’s Rowan Says

Olivia Raimonde & John Gittelsohn, Bloomberg

Citigroup’s Fraser Says Return-to-Office Trends Drive Property Fears

Jennifer Surane, Bloomberg



TCW CEO Koch Warns ‘Major Accidents’ Ahead in Private Credit

Francesca Maglione, Bloomberg

As rising rates wreak havoc in the regional banking sector, another source of potential chaos has garnered attention: commercial property. In the wake of Covid-19’s shift to remote and hybrid work, landlords are still struggling to refill office buildings. The vacancy rate for office buildings in the US has increased for the past 13 straight quarters and is nearing 19%. The squeeze is being felt mainly by older office buildings that lack modern amenities so the trend may avoid hurting newer buildings’ rents. In the big picture, US commercial property rates have fallen in general, with office prices dropping a hefty 25%. Meanwhile, the Federal Reserve’s monetary tightening through driving up interest rates is causing major dislocation between rent prices and borrowing costs, leaving several large landlord firms to default.

This development may cause commercial-property landlords to fall behind on their mortgage payments, and industry leaders worry particularly about real estate with debt that’s been packaged into lower-rated commercial mortgage-backed securities.In the private credit market, leaders warn of a major accident in the coming year. Most private credit firms began in the era of near-zero interest rates after the financial crisis, allowing them to blossom unfettered and with very low risk. Now, investors must be more prudent, with a particular area of weakness being regional banks, which have the highest exposure to commercial real estate.

Postimperial Empire

Timothy Garton Ash, Foreign Affairs

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In order to secure a future in which no empire dominates the European continent, the European Union must first become imperial in nature. The revanchism of the Russian state through the war in Ukraine has threatened the peace and security of a continent that’s seen innumerable wars over its history, one that sacrificed millions in the second world war to achieve a lasting peace. To defeat an illiberal, undemocratic empire, a liberal democratic empire must rise to the challenge. The European Union already has some trappings of empire: EU law takes place over national law in many areas, the EU negotiates trade deals on behalf of its member states, and the euro means that much of the union shares a currency. However, it must further centralize authority, implement effective decision-making, and enlarge itself in order to ensure peace and stability for the continent. Enlargement would include states so far left out, such as the western Balkans, Moldova, Ukraine, and perhaps Georgia someday. A larger EU would have to be more powerful. A small member country, such as Hungary, shouldn’t be able to ‘go rogue’ and veto major initiatives. Any changes to the EU’s internal mechanism must also ensure that one large member country, such as France or Germany, doesn’t become a hegemon in the bloc. The EU is the first attempt to build a truly liberal empire, one of voluntary membership and democratic consent. It keeps itself together not with force and suppression such as in Putin’s Russia, but with the rule of law. In order to ensure a lasting peace for one of the world’s most enigmatic regions, the EU must become strong enough to defend the interests and values of European will.

Latin America’s Critical Role in the Green Revolution 

The green revolution will stall without Latin America’s lithium

The Economist



Chile and Argentina Are Playing Against Type on Lithium Mining

James Bosworth, World Politics Review

Latin American countries, rich in mineral reserves critical to the green energy transition such as lithium, copper, and nickel, are increasingly turning towards economic nationalism in response to the heightened demand for their resources.From Chile to Mexico, the nationalization of lithium, critical in electric vehicle batteries, is on the agenda. The purpose behind these changes is to increase the state’s revenue and power, create more job opportunities for domestic businesses, and for social justice. Yet nationalization carries risks. For one, it has a bad track record in the region, as the Venezuelan PDVSA can attest. Second, it may limit access to cutting-edge technology. Third, capital flows may dry up as property rights come into question. Chile in particular has many investors nervous, as the country, viewed as pro-business over the past few decades, seeks to bring lithium under state control. Investors are therefore seeking alternatives, such as in the Argentine lithium industry, which is viewed as business-friendly, even if Argentina broadly has a poor business environment. Contrast Latin America with Australia, where the lithium mining business is thriving, and the risks become even more apparent. Still, even with due consideration given to the risks associated with greater state control, the Latin American countries have a supply advantage since these minerals are critical and reserves can be found in only a handful of countries. As such, investors will likely continue to work with Latin American countries, even under worsened business conditions, though the industry as a whole may suffer an array of inefficiencies as a result.