Fighting wildfire (The Statesman (Pakistan))
As fate would have it, the world’s second largest economy is slowing down. Whether or not it is destined for a hard landing or not is yet to be seen. Despite the dismissiveness of the West in particular to China’s rise to prominence in the international economic arena, the recent volatility in the global markets has made it clear just how well integrated the fate of nations is in the era of globalization. The devaluation of the Chinese currency has created a lot of panic in financial markets. Some experts even warn that this might trigger a series of competitive currency devaluation as other Asian countries like Japan, South Korea, Indonesia, Malaysia and Singapore fight to make their exports cheaper to the rest of the world. If things take a more extreme turn, trade barriers could be put in place.
To add to this, with the Fed edging towards a lift-off, emerging markets will be in for a ride-those in particular that have large amounts of debt to repay. As their local currencies dwindle and central banks are forced to hike monetary policy rates, hopes of growth will be dashed to the ground. Fed Chair Janet Yellen has said that the Fed will do so slowly and steadily and its policy is to remain ‘accommodative’.
For the time being, however, China’s efforts coupled with strong U.S. economic data boosted investor sentiment and allowed Asian markets to rebound. Only the coming days will tell if this trend can continue into the future. The entire episode, however, has highlighted the challenges associated with living in a world that has become better integrated over time. Policymaking whether it is the realm of politics, diplomacy, social issues or the economy has become a very complex exercise. The impact of decisions taken vis-AÂ -vis national politics or economy cannot be limited in scope or vision. In an age of increased interconnectivity, the fate of nations is tied with each other and the only recompense is that it helps create an environment where it has become far easier to collude on objectives and seek mutually shared goals. How the looming financial crisis will be handled as China and the US – nearly always at loggerheads with each other come together to restore stability in the global financial market will be a sight!