Flashpoints emerge across the world economy

Carlo Cottarelli is Italy's premier-designate  after President Sergio Mattarella blocked the appointment of a deeply ...

As Donald Trump’s tax cuts power up the American economy, rising US interest rates are driving the greenback higher and sucking liquidity from the global economy. That’s hitting emerging market economies, such as Argentina, Turkey and, to a lesser extent, Indonesia on our northern doorstep. At the same time, Italians are trying to cobble together a bizarre coalition government that wants to both increase public spending and cut taxes. The Mediterranean refugee crisis has devastated support for the European Union among Italian voters who once saw Brussels as a safeguard against their own unstable governments. The result is a re-emerging euro crisis.

Australia’s national complacency is now being fed by a commodity price rebound for our energy and iron exports, and by assumptions of an improving global economy. That’s feeding the conceit that an capital-importing economy, such as ours, can costlessly maintain a tax penalty on imported capital while the nation squabbles about the “fair” spoils of a stagnating pie. At some stage, this national drift will run aground, perhaps magnifying the next external shock. Australia sailed through the 1997 East Asian economic crisis, the early 2000s US tech-wreck and the 2008-09 global financial crisis. But did anyone mention the alarming build-up in debt in China, which now takes nearly 30 per cent of our exports, compared to only 5 per cent in the early 2000s? Hey, Reserve Bank governor Philip Lowe did, just last week.

Source:-afr