“The collection of Euro Zone nations are managed by the European Central Bank (ECB) and its region would be ranked 1 in the world, greater than the US.”
Global economy is impacted by several factors such as the trade war, rising crude oil prices, dollar strengthening and socio-political climate. Frank-Jürgen Richter, chairman of Horasis, a Global Visions Community and an independent think tank, based in Zurich, Switzerland tells YV Phani Raj where the economy and trade is heading.
Crude oil prices are impacting every economy. How do individual economies protect themselves from this impact and what should India do?
A flippant answer would be-grow your own. But with fossil fuels, this is impossible and many nations have to rely on imports to generate the electricity and other feed-stock chemicals needed by their producers internally. There are several responses-one is to review the efficiencies of all energy consumers and to replace older equipment with more efficient units.
Another is to substitute from fossil fuels to renewables-which India is doing rapidly. It has a solid nuclear electricity generation programme; and it has wind farms and vast solar panel arrays, and hydro-electricity generators. The ministries must also look to a pan-India electricity grid able to move electricity north/south, east/west according to demand and according to weather patterns; the technology is available, and the creation of a new energy market more possible now that the recent reform leading to the GST has been enacted.
Do you think Fed Reserve and RBI are given adequate autonomy?
First we ought to note that all nations have a national bank charged with managing the national wealth and arranging a fiscal policy: some also have sovereign wealth funds accrued mainly from fossil fuel sales. Ideally these banks are independent of the government, but many are not, especially in the smaller (possibly corrupt) economies; recently we have seen even in the large economy of Turkey a considerable degree of control has been exercised by the President over his bank.
Secondly there are relatively few national banks of importance – they are of the larger economies, measured by GDP: in descending order we have the FED, China (PBOC), Japan (BOJ), the Bank of England (BOE) and the RBI. The collection of Euro Zone nations are managed by the European Central Bank (ECB) and its region would be ranked 1 in the world, greater than the US.
Most banks are concerned to keep inflation in check, and also attempting to stimulate growth-a delicate balance. The banks, especially the major economies having stimulated their economies must reduce their incurred debt at some point, which is now-or in the near future.
Gradually the FED (most notably) and the ECB will increase their interest rate to about 2 percent. This figure is not the result of a precise calculation, but it is subjectively deemed correct by the banking committee, and not all banks follow the same arguments. The BOE has just stated it will begin selling the half trillion pounds of assets it bought to use the cash to boost the UK economy in other ways. The RBI is considering a further easing of its national rate slightly as inflation is on target. But the Indian Finance Minister Arun Jaitley might consider other fiscal stimulus measures to boost economic activity in India.
Where do you see Brexit heading?
Brexit is a conundrum-from its beginning; we might question why a nation would wish to leave the EU rather than remaining inside and arguing about its characteristics from inside. “Bigger is better” is a phrase that springs to mind, even if the UK was the globe’s fifth largest economy before Brexit negotiations took place, not having the protection of the EU seems a lot to lose.
When the UK leaves the EU on March 29, 2019 (which it has to under the EU regulations given the UK triggered that default) it will revert to being an off-shore island close to the large continental market.
What major global trends do you foresee in 2019?
The effects of the present global slow-down will hamper growth plans of many governments, even in India. Just like a household, governments ought to balance their books and not issue debt too easily. At some time it has to be repaid to reduce the rates it has to pay on interest-this is a global fiscal problem.