Article updated 4 February 2019
Discussions around global risks at the World Economic Forum (WEF) have largely focused on China, despite the ‘likely risk’ focus of the WEF’s global risk report being dominated by climate change related risks and data.
China, however, has and will continue to have an impact on the world’s economy.
In the WEF outlook panel, which kicked off the forum, discussions took a more global view. IMF President, Christine Lagarde, said the economy is growing much more slowly than expected and this means higher risks.
“Think of how higher tariffs and rising uncertainty, and the over-futured trade policy fed into lower asset prices and higher market volatility,” she said. “This in turn contributed to tightening financing conditions, including for advanced economies, which created a world of a higher debt burden.”
Lagarde emphasised that this did not necessarily mean there was a recession around the corner. Instead, she believes the message for policymakers is to address the remaining vulnerabilities in their systems and to be ready if a serious slowdown were to materialise. The focus should be on resilience.
“Developing macroprudential tools will further financial sectors’ stability and reduce potential vulnerabilities,” Lagarde explained.
It is Lagarde’s focus on global collaboration that narrows in the post Global Financial Crisis regulatory environment, and in Australia’s case, the post Hayne Royal Commission environment:
For Australia, the recent fight against corruption from the policy development level could be seen in the hard stance Austrac has been taking, as well as the Modern Slavery Legislation, the work being done by the state anti-corruption body, and the whistleblowing legislation that was projected to pass through parliament.
New IMF Chief Economist, Gita Gopnath, addressed the impact trade tensions are having on global risk.
“While financial markets in more advanced economies appear to be coupled with trade tensions for much of 2018, the two have become intertwined more recently. Tightening financial conditions are escalating the risks to global growth,” Gopnath said.
An escalation of trade tensions and worsening of financial conditions are two major sources of risk.
The ‘Brexit cliff-hanger’ and the protracted government shutdown in the United States got key mentions.
Another major impact would be the yellow vest protests in France around the tax on gas.
For Australian companies, it is question of which global events are going to have the most impact on their businesses.