For this week’s newsletter, we focus on areas of economics growth and geopolitical shifts, as well as potential signs of upcoming troubles. First, we examine fears about a global slowdown in the near future, as well as the effect that fear is having on financial markets. Then, we look at Africa’s situation in an age of renewed great power conflict and how it may affect the continent’s trajectory. We then move to China’s current economic headwinds, contrasted against some potentially promising developments. To end this week, we touch on the explosive growth story expected from Asia in 2024, as well as countries that may not benefit from the expansion.

Global Economy May Soon Face Headwinds

US deficit poses ‘significant risks’ to global economy, warns IMF 

Claire Jones & Sam Fleming, Financial Times

Is the global economy stumbling into ‘the tepid Twenties’?

Claire Jones, Sam Fleming, & Martha Muir, Financial Times

Traders Are Cashing Out of Markets En Masse

Denitsa Tsekova & Isabelle Lee, Bloomberg

Even though fears about a global recession have been receding, the global economy may face worrying headwinds in the near future due to rising public debt, geopolitical instability, and slowing globalization. The IMF has warned that rising public debt in the world’s two largest economies – the US and China – risks adding to global inflationary pressure, complicating the fight against rising prices for central banks around the world. High interest rates, which raise the cost of borrowing, will likely end up hurting poorer countries the most as poor fiscal situations limit their ability to access money. While the IMF does see a few bright spots, such as India’s encouraging economic development, it still highlights the risk of a “tepid twenties.”

Financial markets are also increasingly driven by fear. Rising Middle East tensions, stubborn inflation, and high interest rates have begun to scare the market, which has seen investors responding by pulling cash out of equities and junk bonds at the highest rate in over a year, many moving to high-yielding short-term bonds and other traditional safe havens. A widening gap between Treasury yields and S&P earnings has been pointed out by experts as another warning sign. In the meantime, expectations for a reduction in interest rates in the near future has dropped, signaling that investors don’t see a soft landing as clearly as they once did.

Africa’s Age of Transformation

The US, the West and the future of Africa

Jakkie Cilliers, ISS African Futures

Defying Niger exit order leaves U.S. troops vulnerable, whistleblower says 

John Hudson, Dan Lamothe, Rachel Chason, & Alex Horton, The Washington Post

The UAE Has Set Its Sights on Africa’s Critical Minerals

Duncan Money, World Politics Review

In this era of transformation, the African continent has become the stage for global competition, particularly regarding critical minerals. The shift towards renewable energy sources has sparked a race for critical minerals, essential for the green transition. While debates about Africa’s mining sector over the past decade have focused almost exclusively on China’s growing dominance over the production of critical minerals in Africa and on Russia’s interests in gold in West Africa, the UAE is actively securing access to these resources on the continent, exemplified by its acquisition of two copper mines in Zambia. As the UAE seeks to secure a place in the green energy economy to hedge against the vulnerabilities of its oil-dependent economy, it is also working to establish itself as a hub for processing critical minerals, as are several other international actors, by investing in infrastructure projects in Africa. While the UAE works to outbid China, the US, and others in the region, China has a significant first-mover advantage, having already secured much of the known critical mineral supply chain in Africa.

China’s extensive engagement in Africa, primarily through trade, investment, and infrastructure development, contrasts with the declining US presence in the region. Dr Jakkie Cilliers, founder and former executive director of the Institute for Security Studies (ISS), believes if the US wants to maintain its influence in Africa, it must find ways of collaborating with China – not competing. He warns “a new era of competition between the US and China does not augur well for the continent” given the bloody history of the 1980s when tensions between the US and the former USSR led to intense proxy wars in the Horn and Angola. While many Africans look to the US as a beacon of freedom and opportunity, positive views of the US are declining and many of Africa’s ruling elites admire China’s state-led, autocratic development model. Also challenging US efforts on the continent are its difficulties in maintaining security cooperation with countries like Niger, where a military junta’s rise has led to the suspension of US military activities and growing resentment towards American presence. Meanwhile, Russia’s increasing involvement in Niger’s security, as well as in other Sahel countries, further complicates the situation. In sum, there is a complex interplay of economic interests, security concerns, and geopolitical rivalries shaping Africa’s trajectory.

Can China Overcome a Slowdown?

China’s Export Dominance: What to Know

Keith Bradsher, The New York Times

China’s Rebalancing Imperative 

Stephen S. Roach, Project Syndicate

A glow-up for China’s state-owned enterprises 

Sonja Hutson & William Sandlund, Financial Times

While China’s growth has undergone a slowdown, bright spots in the economy and potential avenues for a return to healthy development. Recently, China’s growth has been stalled due to a property crisis, which has entailed slower economic growth, declining household consumption, issues that are complicated by an aging population and an ongoing trade war with the US. Analysts believe that China’s old model for growth (reliance on exports and investment), which led to a historically unprecedented rise in prosperity, is outdated, and that Beijing should turn to focusing on domestic consumption. If Beijing policymakers don’t readjust, experts predict, then China could face a middle-income trap, slip into a period of low growth similar to Japan’s lost decades, and even cause a global slowdown due to the country’s heavy presence in global markets.

For now, China is dominating exports. It is the world’s largest car exporter, and produces nearly a third of the world’s manufactured goods, benefiting from low-cost supply chains, heavy automation, and abundant government subsidies. Despite an increasing number of tariffs being levied on Chinese goods to stem the flood, Chinese exporters use a variety of counter measures such as funneling exports through countries with lower trade barriers, building its own fleet of car-carrying ships, and direct sales to consumers. Things are slowly changing for the country’s state-owned enterprises, however. In the past, tight government control was seen to stifle innovation and discourage efficiency. Now, in the face of a slowdown, Beijing is tying these entities’ performance closer to their stock market value rather than their ability to achieve official goals. The government is now encouraging dividend payouts, better returns on equity, and improvements to efficiency. Officials are making a tradeoff; they are loosening their grip over these entities to achieve policy goals, which could lead to higher unemployment and social instability.

Asian Economic Growth: An Unbalanced Region

Is South Korea’s economic miracle over? 

Christian Davies, Financial Times

Asia to drive 60% of global GDP growth in 2024, led by India: IMF 

Jack Stone Truitt, Nikkei Asia

Asia is expected to be the global economic powerhouse in 2024, contributing 60% to global growth. However, this is not spread equally through the region. On the positive side, Asian countries leading the expansion are India (forecasted to grow at a rate of 6.8% this year) and China (at 4.6%). Both countries’ growth is expected to be driven by strong investment activity, but in other emerging Asian markets private consumption will be the main driver. China is especially influential, as it’s projected that 1% of growth in China would have a trickle-over effect of 0.3% for its close trading neighbors. Still, there are risks: continued high interest rates in the US have strengthened the dollar, weakening the yen and won in comparison. Additionally, geopolitical tensions such as those between China and the US or between China and India could pose a risk to the expected growth.

There are weak spots in the Asian growth story, however. Some experts highlight South Korea, which faces a myriad of challenges on different fronts: declining birth rates, high youth unemployment, and high household debt levels all contribute to the economic worries. Additionally, Seoul is struggling to attract investment compared to larger countries like the US. Traditional industries, such as advanced computer chips, are being drawn to places where governments are heavily encouraging their production. In this way, South Korea’s traditional focus on manufacturing may not sustain its future trajectory. On the political front, there has been a lack of progress on pension, housing, and healthcare reform. Little progress has been made on other important issues, such as low productivity, a gender pay gap, and the development of stronger financial markets. In order for South Korea to grow with the rest of Asia, experts say it would have to clear the political gridlock and implement reforms, where it could increase innovation and maintain its competitiveness on the global stage.