Seeking understanding amid intense times
It seems appropriate to open with a line from Lenin: “There are decades where nothing happens; and there are weeks when decades happen.” Last week was certainly one of those decade weeks. And I expect the weeks to come will be similarly intense.
The conflict in Ukraine is casting a long shadow over the global economy, has already permanently changed Europe, has uncomfortably put China in the geopolitical spotlight thanks to its “no limits” friendship with Russia and the increasing violence, and will shape this century’s world order and global economy in ways still unclear and evolving. Much ink has been spilled trying understand these and other themes.
Our own contributions have explored the global implications of the conflict between Russia and Ukraine, which will affect the global economy via three main channels: financial sanctions, commodities prices and supply-chain disruptions. Our EIU colleagues also recently did an analysis of what economic support China will lend Russia. The sanctions on Russia suggest that the Russia may increasingly look to China in the economic, technology and financial spheres. Even prior to the crisis, China was more consequential to Russia as a trading partner than vice versa.
We may especially see deeper linkages in the energy sector. Russia will need alternative markets and China will have the upper hand in setting commercial terms and could negotiate prices that could help it offset the inflationary impact of surging global fuel prices. This could also help China reduce its dependence on energy commodities from countries with which it has more tense relationships, like Australia. Although the current sanctions do not target energy trade, the lack of financial channels and the fear of falling foul of sanctions will still hurt Russian energy exporters and the Chinese market could therefore be appealing.
Closer to home, the week has also been active. Over the weekend, China’s Government Work Report set the country’s real GDP growth target for 2022 at 5.5%. This ambitious goal is slightly above our own forecast and it indicates that growth is back as an official priority and the government will emphasize economic stability. We will soon be considering how this target will be achieved and what it means for other policy priorities, like decarbonisation. For now, our EICN Shanghai Director Guoxiong Zhang has done a preliminary analysis of how to understand the 2022 growth target. There will soon be even more to analyse now that the two sessions have commenced in Beijing.
We’ll be exploring issues related to China, Asia, and the world in upcoming programmes. In a webinar this Thursday, EIU colleagues and I will explore what’s next for the CPTPP, the subject of a recent EIU white paper. And next week we’ll convene for the Regional Strategic Forecast on 17 March. I hope to see you there. We are closely monitoring the Covid situation in Shanghai, and if we need to modify the programme, will inform you promptly.
Before thinking of Lenin, I found myself strangely recalling a W.B. Yeats poem, The Second Coming, as I sat down to write. I had forgotten that Yeats wrote it at the end of WWI and as the Irish War of Independence was starting and also while his wife was convalescing having taken ill during the 1914-1918 flu pandemic. It is quite unusual to again be living through a pandemic and war. And while our innocence may be drowned, I am not certain that “The best lack all conviction, while the worst / Are full of passionate intensity.” I am certain that it is a privilege to unpack these challenging times with you and consider the implications for your business. Stay well.