Growing global economic distress as G7 meet ends – IBON Foundation

May 22, 2023


The United States (US) is maneuvering the rest of the G7 into its all-defining great power competition with China. Underlying the official G7 agenda in Hiroshima is the US effort to make containing China a shared priority of all G7 members. The stakes are high – will the US or China be the dominant global power in the coming decades?

The Biden administration’s National Security Strategy (NSS) 2022 is blunt and calls China “the only competitor with [the] intent to reshape the international order [and] the economic, diplomatic, and technological power to advance that objective.” Russia, meanwhile, is seen as more of a military threat as affirmed by its attack on Ukraine.

The US will have to navigate the respective interests and objectives of everyone in the room particularly, but perhaps not only, with respect to China. It is doing this while treading an increasingly volatile global landscape.

There are visible security flashpoints like the Russia-Ukraine conflict, tensions across the Taiwan Strait or on the Korean Peninsula, nuclear ambitions in the Middle East, and others. Many of these are stoked by the US itself which uses combustible situations for its own geopolitical ends.

However, there is also the global economy which is being dragged down by fundamental forces that even the mighty US is still captive to. It may be the world’s dominant imperialist power but it is still merely monopoly capitalist and as such subject to the deeply-ingrained contradictions of capitalism.

Yes, it’s a deep crisis

The world capitalist system is entering a new stage of its deepening and worsening crisis. The protracted stagnation that started after the global financial and economic crisis in 2008 will become even more entrenched with slower growth, deeper joblessness, and worse poverty. Global capitalism is facing the twin shocks of intensifying volatility and instability in the financial system and of globalized supply chains being reorganized.

Supply chains were disrupted by the pandemic lockdowns and the Russia-Ukraine war and are starting to be reordered upon greatly accelerating protectionism. In particular, the clear trend towards heightened protectionism and trade wars between the imperialist powers – on top of their geopolitical contradictions – signals the start of more overt inter-imperialist economic rivalries. Even within the G7, the US raised tariffs against France and Germany and coerced Japan in the last few years to protect US firms.

In just the latest of consecutive downgrades, the World Bank expects the global economy to grow by just 1.7% in 2023 which – outside of the contractions in 2009 and 2020 – will be the slowest growth in nearly forty years. The slump so soon after supposed post-pandemic reopening and recovery coincides with ignitable levels of financial distress and rapidly accelerating protectionism.

More than that, the World Bank cannot deny the structural growth slowdown in the world capitalist economy and admits that “the global potential growth rate is expected to fall to a three-decade low over the remainder of the 2020s.”

In the last decade, the leading capitalist countries sought to overcome stagnation with the unprecedented expansion of money in the economy, through so-called quantitative easing, and the bringing down of interest rates to record lows. However, these did not, could not, and were not meant to resolve the underlying crisis of overproduction. Instead, they only worsened the financialization of the capital accumulation process. The COVID-19 pandemic was also used to justify even greater debt especially by governments and global debt has bloated to record highs.

No, more finance won’t fix it

Private and public financial burdens are much higher today than in 2008. The assets of financial institutions can be a proxy for financialization. The total assets of financial institutions worldwide were valued at US$258.9 trillion or 404% of global GDP in 2008. This kept bloating to reach US$404.1 trillion or 461% of global GDP in 2019, before the pandemic, and then rising even more to US$486.6 trillion or over 500% of GDP already by 2021.

Total global debt (i.e., government, financial and non-financial companies, households) has also been increasing at the fastest rate on record. Global debt of US$164 trillion or 213% of global GDP in 2008 grew rapidly to US$255 trillion (322% of GDP) in 2019 and then US$281 trillion (over 360%) in 2020. The economic rebound reduced the debt-to-GDP ratio to 351% (US$303 trillion) in 2021 and then 338% (US$299 trillion) in 2022, but then still reached a record high of over US$305 trillion or some 348% of GDP in the first quarter of 2023.

The rapid expansion of debt is a desperate measure to support unprecedentedly crisis-ridden capitalism. However, these record levels of debt are unsustainable and monetary policies have been tightening and interest rates have been rising since last year. The interest rate-driven choking of aggregate demand to contain inflation only increases the risk of debt distress and defaults. The global capitalist system is once again reaching the limits of its conventional financial, monetary and credit policies which portends another systemic meltdown before the decade ends.

The early signs of renewed financial turmoil started in March 2023. The US government was forced to step in with US$25 billion to bail out depositors of technology sector-heavy Silicon Valley Bank (SVB) in the second biggest bank failure in US history. SVB’s troubles were due to rising interest rates as well as the weakening of their technology firm clients. Not soon after, the Swiss government – under heavy pressure from the US and other European governments – engineered the takeover of too-big-to-fail Credit Suisse by Union Bank of Switzerland (UBS) with US$110 billion worth of Swiss government guarantees. Even Germany’s giant Deutsche Bank has seen the value of its shares slide from growing fears of widespread contagion in the wider banking industry.

The most immediate risk is from how the financial system and economies are not going to be able to absorb the higher interest rates being used to contain supply-side and profit-driven inflation. As it is, the US Federal Reserve has already raised interest rates to their highest level in 16 years.

Yes, that globalization stuff is over

The end of so-called globalization will disrupt the efficient profit-seeking built up over decades of global economic integration. This will drive states to extend subsidies to monopoly capitalist firms – to make up for profits lost from restricted flows of goods and finance and to finance relocation strategies, aside from also boosting profits diminished by the global slowdown and tighter financial and monetary policies.

The imperialist powers are ramping up protectionism and support especially for their domestic industrial and high-technology sectors. US imperialism has been the most aggressive in turning back even from the rhetoric of neoliberal globalization. The previous Trump administration earlier initiated the US’s trade war with China with various tariff increases, export restrictions, and investment controls. The Biden administration last year passed legislation providing for US$465 billion in industrial subsidies especially for semiconductors, chips and climate-related sectors particularly renewable energy. The Inflation Reduction Act alone provides for US$369 billion in green subsidies. “Buy American” and “Made in America” local content rules are being greatly expanded, trade protection is rising, and as much as US$100 billion is targeted to be spent annually on corporate-friendly and -supportive infrastructure in 2023-2032.

The European Union (EU) has started being more aggressive in filing anti-dumping cases and is tightening screening of foreign investment. It is already drawing up measures to strengthen its industrial and digital sectors as well as to reduce reliance on accustomed foreign suppliers especially from China. The EU justifies its increasing interventions – including setting domestic production targets and providing state aid and subsidies – as supporting the transition to greener and more sustainable technologies. The EU’s Global Gateway Initiative alone provides for US$330 billion in funding digital, energy, transport and research from 2021-2027. Industrial powerhouse Germany will be among the biggest gainers from EU-wide interventions.

China for its part has always been heavy-handed with its state interventions to favor domestic capitalist interests. Its success with this is among the reasons why much of the protectionism by the traditional capitalist powers is designed to slow its ascent. Albeit hidden, China’s support for its domestic producers and state enterprises spanning subsidized financing, tax breaks, extensive infrastructure, local procurement, and cheap land is arguably the most extensive in the world. Its trade barriers and investment regulations are complex and protect domestic firms while feigning liberalization. Its forced technology transfers and vast industrial espionage have enabled it to push technology frontiers in many areas. It is likely that China will also become more aggressive in using its supply of crucial raw materials for green technologies to its advantage in negotiating global trade and investment deals; it controls some 60% of the world’s rare earth production and 85% of refining capacity.

The protracted stagnation in the world economy since 2008 has already resulted in flat global trade in goods and services and in flat global foreign investment flows, measured as a share of global GDP. Trade was steadily increasing from less than 37% of GDP in the early 1980s to nearly 60% in 2007 but then plateaued at an average of some 57% since 2008.

Similarly, foreign investment rose from barely 0.5% of GDP in the early 1980s to a near-record 3.3% in 2007, but then flattened to an average of just 2% since 2008 including falling to less than 1.7% even before the pandemic. These trends will likely track even more downward with the onset of recession and growing protectionism.

The G7 countries constitute some 44% of the global economy and virtually all, except Japan, are expected to slow down or go into recession this year.

No, it’s not just the big powers in trouble

The neocolonies are hit by the upheavals from financialization even if their financial systems are still backward and underdeveloped. The direct effect is from finance simply seeking safe havens amid global distress. Capital outflows from emerging markets increased as soon as the pandemic hit and worsened especially as interest rates rose in the US and other capitalist centers last year. Some US$120 billion flowed out of so-called emerging markets last year or about as much as during the height of the global financial crisis in 2008.

Public finances are among the most directly affected. Debt-distressed countries are implementing austerity programs and cutting public spending on essential education, health, housing and social protection services.

Market conditions will only become more volatile in the rest of the year as inflation lingers, interest rates stay high, and recessions start to occur in the leading capitalist centers especially in Europe and the US. The working classes are already bearing the brunt of rapid inflation and high prices of goods and services.

Despite its recent relative decline and growing multipolarity in the world, the US still remains the single biggest influence on global geopolitics and the international economic system. It has always been about manipulating and coercing countries large and small to create the conditions for American monopoly capitalist firms to thrive. The G7 has long been among its informal but influential venues for coordinating global economic policy.

Today, challenged by China and struggling with the intrinsic contradictions of capitalism, it is becoming even more aggressive especially in the Indo-Pacific but also across the breadth of the planet. It seeks to rebuild its economic power with resurgent industrial protectionism at home in the most technologically advanced sectors while ensuring a neocolonial network of countries providing cheap labor, raw materials and markets for US exports. It is also out to strengthen its control of global finance against attempts to erode this, as well as dominate cyberspace the way it has historically dominated so much of the world’s territories.

The Marcos Jr administration has already confirmed the Philippines’ role as a vital cog in the US’s expansive self-serving global strategy. This has the worst implications for the country and will further stymie national economic development, aside from prevents the independent economic response so needed amid the worsening global crisis to prevent even more social and economic distress for ordinary Filipinos. ###


Sonny Africa

Sonny Africa is the executive director of IBON Foundation.



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IBON Foundation

IBON Foundation is a non-stock, non-profit development organization. We have been serving the Filipino people through research and education since 1978. IBON seeks to promote an understanding of socioeconomics that serves the interests and aspirations of the Filipino people. We study the most urgent social, economic, and political issues confronting Philippine society and the world.

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