Wall Street Journal Article: Globalization: Battered but Not Beaten by Stephen Fidler

World Economic Forum — Analysis: Globalization: Battered but Not Beaten — Ever-More Interconnected World Delivers Economic Gains to Many, While Pace of Change Stokes Unease, Political Tension

By Stephen Fidler

21 January 2015

(Copyright (c) 2015, Dow Jones & Company, Inc.)

The perils of forecasting: 12 months ago, as World Economic Forum delegates gathered in Davos, nobody predicted Russia would, within months, annex part of a neighboring state, and anyone anticipating a halving of oil prices would have been guided to a darkened room and told to lie down.

But other developments were more foreseeable: Low growth and low inflation in the eurozone were to hold back Europe’s ability to emerge from its debt crisis and reduce high unemployment. Partly as a result, the political mainstream in many European countries weakened, and nationalist parties grew in strength. Governments elsewhere struggled to cope with the powerful currents buffeting their nations.

In one way or another, most of these developments — foreseen or not — now risk further erosion of the fabric of our internationalized, interconnected world economy.

“Globalization has helped raise hundreds of millions out of poverty,” says Robin Niblett, director of the Chatham House think tank in London. But, he says, it’s moving faster than people and states can adapt to, politically, socially and institutionally. As a result, “levels of trust between governments and citizens are fraying.”

Trust among governments has also been a casualty, he argues. Russia’s annexation of Crimea and its backing for separatist rebels in Ukraine undermined the assumption that countries are all moving at a faster or slower pace to market-based democracies. China worries that the U.S. will try to contain it; while the West worries that rising powers — such as China and India — may not uphold the rules of the global game.

The collapse of oil prices will have widespread ramifications for the world economy, redistributing global income from energy producers — Russia, Venezuela and countries in the Middle East — to energy consumers, which include most of the world’s developed economies.

That should help global growth. Indeed, on the evidence of car sales and other indicators, Americans are already spending their windfall, making the U.S. perhaps the only major engine driving the world economy.

World oil production has been rising thanks in part to the development of nonconventional energy supplies, like shale oil, which has pushed the U.S. toward self-sufficiency. Saudi Arabia, meanwhile, has kept open the spigots with the apparent strategic aim of curbing further investment in the nonconventional sources.

But faltering demand also appears to be a factor, and to the extent the oil price betrays a weakening world economy — and evidence of a Chinese slowdown — it isn’t good news. Slowing demand has already hit other commodities, hurting the economies of raw-materials producers in Africa and Latin America.

Another worry is that falling energy prices might flip low-growth, low-inflation Europe into a deflationary mind-set that would lead people to postpone spending decisions, further inhibiting growth.

“If I were discussing issues in Davos, I think that the prospects of European deflation and a sudden stop in growth in China are the two things I’d be most worried about,” says Lant Pritchett, an economist at Harvard University’s Kennedy School.

Europe’s economic uncertainties are feeding through into its politics. A strong reaction against established political parties isn’t limited to Europe but is taking hold there. People see themselves as losing control over their lives, and blame government elites.

One reason for that is that the trends associated with globalization — rapid technological change, outsourcing and world finance — appear to be responsible for growing wealth disparities. Billions of people around the world are richer because of globalization but inside many nations it has resulted in growing inequalities in income and wealth.

The policy debate about how — or whether — to tackle national inequalities has intensified thanks in part to French economist Thomas Piketty, whose data-heavy tome “Capital in the Twenty-First Century” was published in English last year. Mr. Piketty proposed greater international cooperation on taxation, a move now being explored within the European Union for another reason: to curb rampant corporate tax avoidance.

In Europe, many people view the EU as being responsible for their discomfort with the globalized economy and for encouraging unwanted immigration.

Indeed, immigration is also held responsible by some of those struggling with one of the dark faces of globalization: Islamist terrorism. A few fanatics have the capacity to convulse nations, as shown by this month’s attacks in France. Terrorist atrocities meanwhile have taken the lives of thousands of people in Africa, the Middle East and Asia.

“I’m afraid that is the future,” says Mr. Niblett of Chatham House. But, he adds, “I don’t see the globalized economy being in retreat for the simple reason that everybody has seen the benefits. I think the world will hang together.”

Dow Jones & Company, Inc

How a U.S. Textile Maker Came to Embrace Free Trade

By Bob Davis

May 4, 2015 10:40 p.m. ET

SPARTANBURG, S.C.—Milliken & Co., one of the largest U.S. textile makers, has been on the front lines of nearly every recent battle to defeat free-trade legislation. It has financed activists, backed like-minded lawmakers and helped build a coalition of right and left-wing opponents of free trade.

With Congress now gearing up for another trade fight, this time over whether to give President Barack Obama authority to negotiate sweeping trade deals in Asia and Europe, Milliken is in an unfamiliar place. Its executives are urging lawmakers to support the free-trade measure.

The about-face by the family-owned company followed the 2010 death of Roger Millken, its chairman and former chief executive, at age 95. Mr. Milliken, who set the strategy for nearly everything at the company, had railed for years against what he considered China’s pernicious trade practices.

Read More:http://www.wsj.com/articles/how-a-u-s-textile-maker-came-to-embrace-free-trade-1430793654

Total Taps Chinese Banks to Fund Russian Project

By Brian Spegele and Andrew Peaple

Updated March 23, 2015 7:50 p.m. ET

BEIJING—Total SA TOT 2.39 % is pushing ahead with a $27 billion natural-gas project in the Russian Arctic, but it will seek a big chunk of the financing—as much as $15 billion worth—through Chinese banks in local currency and euros.

The decision comes amid worry that Western sanctions against Russia could complicate the sort of dollar-based fundraising that is more typical for big energy projects.

Total’s Arctic project—years in the planning—doesn’t run afoul of sanctions itself. But one of Total’s partners in the Yamal liquid natural gas venture is Russian energy firm OAO Novatek, NVTK -1.88 % in which Total has a minority stake. Another big Novatek shareholder is Gennady Timchenko, who has been specifically targeted by U.S. sanctions.

The U.S. and Europe have slapped a series of economic sanctions on Moscow in recent months amid a standoff over Ukraine and Crimea. Under the sanctions regime, rules limit the transfer to Russian firms of technology related to some unconventional drilling techniques, including shale-oil recovery methods and some Arctic and offshore oil projects. But Yamal, a natural-gas project, isn’t specifically affected.

Read More:http://www.wsj.com/articles/total-seeks-10-billion-to-15-billion-in-chinese-financing-for-russian-project-1427093833

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Volkswagen Strains to Keep Foot on the Gas

By William Boston

Updated Dec. 10, 2014 9:50 p.m. ET

WOLFSBURG, Germany—Seven years into a decadelong push to outsell rivals Toyota Motor Corp. and General Motors Co. , Volkswagen AG Chief Executive Martin Winterkorn appeared to be in the passing lane.

Volkswagen, after all, is on track to sell more than 10 million cars and trucks in 2014—four years ahead of plan. It overtook GM last year and could soon eclipse Toyota to claim the industry’s top spot.

But on Tuesday, Mr. Winterkorn surprised investors by announcing he would step down as CEO of the VW brand, the company’s namesake marque which has suffered dwindling sales in most markets as well as weak overall profits. He will retain his position as group CEO. His replacement at the VW unit, a top executive from German rival BMW AG , Herbert Diess, will come aboard in October.

Read More:http://www.wsj.com/articles/volkswagen-strains-to-keep-foot-on-gas-1418259788

Russia Moves to Help Lift Sinking Ruble

By Nicole Hong in New York, Andrey Ostroukh in Moscow and Chiara Albanese in London
Dec. 15, 2014 7:38 p.m. ET

A spiraling currency crisis, fueled by the bite of Western sanctions and the plummeting price of oil, spurred Russia’s central bank to raise interest rates late Monday, a drastic move aimed at shoring up the collapsing ruble.

The surprise action came at the end of a turbulent day for global financial markets. Currencies and stock markets from several developing nations were buffeted by the deepening oil-price slump and worries about future interest-rate increases in the U.S.

The epicenter of the troubles was Russia, where the ruble plunged to a record low in its biggest one-day decline since 1999.

The ruble’s fall, described by analysts as “staggering” and “extreme,” prompted Russia’s central bank to hike a key interest rate by 6.5 percentage points, to 17%, after New York’s trading day had ended. One dollar now buys more than 65 rubles, compared with 33 rubles at the start of the year.

Before Russia’s late move, U.S. stocks posted their fifth loss in six sessions, with the Dow industrials dropping 99.99 points, or 0.6%, to 17180.84. The selling was more intense in other markets, with Europe’s main index down 2.2%. Stock markets from Thailand to Mexico also dropped.

Analysts chalked up that bout of selling to growing anxiety about the impact on fragile developing economies of falling oil prices and the Federal Reserve’s looming policy shift. Many investors expect the Fed to signal at the end of its two-day meeting Wednesday that it is closer to raising interest rates than it has indicated in the past. That would deliver a hit to emerging markets that have benefited from years of easy-money policies by the U.S.

Russia’s central bank, which announced its decision after a late-night board meeting, said it increased rates because of devaluation and inflation threats. It also raised another key benchmark, known as the repurchase rate, to 18% from 11.5%. The moves risk pushing Russia closer to recession and are liable to be a blow to Russian consumers, who will face much higher rates to borrow the currency.Analysts chalked up that bout of selling to growing anxiety about the impact on fragile developing economies of falling oil prices and the Federal Reserve’s looming policy shift. Many investors expect the Fed to signal at the end of its two-day meeting Wednesday that it is closer to raising interest rates than it has indicated in the past. That would deliver a hit to emerging markets that have benefited from years of easy-money policies by the U.S.

Russia’s central bank, which announced its decision after a late-night board meeting, said it increased rates because of devaluation and inflation threats. It also raised another key benchmark, known as the repurchase rate, to 18% from 11.5%. The moves risk pushing Russia closer to recession and are liable to be a blow to Russian consumers, who will face much higher rates to borrow the currency.

Read More:http://www.wsj.com/articles/russia-moves-to-help-lift-sinking-ruble-1418690337

India Aims to Shed Its ‘Fragile’ Label

By Nicole Hong and Shefali Anand
Dec. 1, 2014 3:36 p.m. ET

When India’s newly elected prime minister visited New York in September, almost 20,000 people showed up to see Narendra Modi speak at Madison Square Garden, about the same number who turned out to see Billy Joel earlier that month.

Investors around the world are giving Mr. Modi, and India, the rock star treatment.

Money managers have poured $16.5 billion into Indian stocks this year, the most of any developing country tracked by the Institute of International Finance. India’s S&P BSE Sensex has soared 35% this year, closing at a record 54 times in 2014.

Investors are betting that Mr. Modi, elected in a landslide in May, will introduce policies to jump-start India’s economy, boosting profits at companies ranging from banks to cement makers. It is a sharp reversal in sentiment for a country that had been in its worst slowdown since the 1980s. Just last year, Morgan Stanley labeled India one of the “fragile five” emerging economies most at risk from slowing growth and ballooning deficits.

India’s changing fortunes illustrate how investors are eager to pile into countries that promise to unlock faster growth, at a time when most developing markets are slowing and wealthy economies are sluggish. The payoffs would be huge. India is the world’s 10th-biggest economy, but its performance has often lagged behind other emerging markets due to the country’s unwieldy bureaucracy and poor infrastructure.

Economists predict India will expand at a faster rate this year, the only one of the BRIC countries—which include Brazil, Russia and China—expected to accelerate. The International Monetary Fund expects growth in India to reach 6.4% next year, from 5.6% this year. For money managers who have to invest billions on behalf of large institutions, India may be one of the last developing economies of its size that can offer steady, highflying returns.

“The potential of India, which had been suppressed for so long, could finally…be unlocked,” said Rasmus Nemmoe, a portfolio manager at LGM Investments, which oversees $2.8 billion. He has bought Indian stocks over the past year, and they now make up 25% of his emerging-markets portfolio
However, the success or failure of this big India bet will ride on whether Mr. Modi can overcome decades of steeped bureaucracy in the country. Data released last week showed India’s economic growth slowed in the third quarter, raising concerns about how quickly Mr. Modi can implement politically tough overhauls. So much money has crowded into India’s stock market that any disappointment or unforeseen event could push it into a downward spiral.

Some analysts said Mr. Modi could struggle to push through politically unpopular overhauls. In the next few weeks, lawmakers are expected to take up a bill toward establishing a national tax for goods and services. But the government faces hurdles in winning over states run by political parties that oppose the plan.

“Expectations have been quite high for reform in India, but some of the hard data doesn’t really tally up,” said Shilan Shah, India economist for research firm Capital Economics, pointing to the lack of improvement in the country’s industrial production and export growth since Mr. Modi took office. “Some progress has been made…but it’s been a little bit underwhelming given [Mr. Modi’s] mandate.”

Read More:http://www.wsj.com/articles/india-aims-to-shed-its-fragile-label-1417466212?mod=trending_now_5

Russia Plans Emergency Fund for Companies Hurt by Ukraine Sanctions

By Alexander Kolyandr and Andrey Ostroukh
Updated Sept. 15, 2014 4:08 p.m. ET

MOSCOW—Russia said it would create a multibillion-dollar emergency fund for companies hurt by Western sanctions imposed over the Ukraine crisis—a sign that the country is girding for a long period of economic isolation.

The creation of the bailout fund, which will last at least through next year, comes amid increasingly frank admissions that, despite initial bravado about sanctions strengthening the nation and its domestic producers, Russia’s economy is starting to hurt.

The Russian ruble fell to a record low of 38.5 against the dollar Monday before recovering slightly, as gloom deepened after Friday’s new round of Western sanctions took effect, spurring fears of Russian retaliation.

Finance Minister Anton Siluanov said Monday that the government could divert at least 100 billion rubles ($2.65 billion), initially destined for pensions, to support companies facing sanctions-related financial troubles.

The economic impact is spreading far beyond the targeted companies and individuals, however. Companies are running short of capital, investors are pumping cash out of the country and consumers are reining in spending.

“The impact from already-imposed sanctions, including limiting access to foreign financial markets for Russian companies, will have a prolonged effect,” the central bank said in its annual monetary policy strategy document, released Friday.

The U.S. and European Union sanctions imposed so far have been relatively narrowly targeted. They include financing limits on some major banks and energy companies, restrictions on technology transfers in the defense and oil industries, as well as asset freezes and travel bans on dozens of top officials and tycoons.

But officials and industry executives say they’ve had a much broader indirect effect, dragging on a Russian economy that was already stalling before the Ukraine crisis exploded early this year.

“The Russian economy was practically stagnating before the sanctions and their effect could be nearly as disastrous as that of the 1998 default, with low investment, restricted imports of technology and high inflation,” said one senior official at a state-run financial institution. “Eventually, the Russian economy will be able to raise financing in Asia, but this can’t happen immediately.”

The central bank warned that growth is expected to continue slowing this year amid sanctions and “continued uncertainty,” falling to near-recession levels. The economy will grow no more than 0.5% this year, according to official forecasts, its weakest performance since 2009.

The Economy Ministry last month slashed its growth forecasts for the next two years to 1% in 2015 and 2.5% in 2016.

The ruble has been the most visible symbol of the economic damage. In an effort to stem the decline, the central bank has raised interest rates sharply this year and indicated they might go even higher if currency and inflation pressures persist.

(Read More:http://online.wsj.com/articles/russia-plans-emergency-fund-for-companies-hurt-by-ukraine-sanctions-1410802572)