As this year began, many experts predicted inflation would be transitory, Europe’s recovery would be stronger than the United States’, and China would return to strong growth. Then inflation soared and Russian President Vladimir Putin invaded Ukraine—fueling an energy crisis in Europe and food price shocks around the world. Meanwhile, China’s zero-COVID policy chained its economy. To make sense of a shocking year for the global economy, our GeoEconomics Center experts take you inside the numbers that mattered—including many you may have missed—in 2022.
$2 trillion
DECLINE IN MARKET VALUE OF CRYPTOCURRENCY ASSETS
Over the past year, the market value of cryptocurrency assets has collapsed from $3 trillion to about $850 billion as Bitcoin—the original and best-known cryptocurrency—plunged from $68,000 to $17,700, stablecoins such as TerraUSD broke the advertised one-to-one peg to the US dollar, and the crypto-exchange FTX sank from a $32 billion valuation to bankruptcy within a week. Those losses and market turmoil have laid bare the volatility of crypto-assets and the pressing need for consumer protections.
Going forward, crypto-assets may not recover their full value, and it’s clear that regulation needs to be tightened to deal with the financial instability and lack of consumer protections exhibited by this year’s market upheaval. In our latest tracker, the GeoEconomics Center explored regulatory developments in twenty-five jurisdictions, which include Group of Twenty (G20) member countries and six countries with the highest crypto adoption rates. Among the countries we studied, cryptocurrency is legal in thirteen, partially banned in nine, and generally banned in three. We found that in 88 percent of the countries we studied, crypto regulations were under consideration, and the next frontier of regulatory developments will be on stablecoins. The United States has a number of legislative proposals under consideration currently, with a larger debate on which regulatory authority must have jurisdiction over crypto-assets. Watch for 2023 to be a marquee year on crypto regulation, especially as Europe and the United Kingdom clarify their regulatory structures.
—Ananya Kumar is the associate director for digital currency at the GeoEconomics Center.
9+ Russia
G20 COUNTRIES NOT PARTICIPATING IN RUSSIA SANCTIONS
A striking ten of the G20 countries (including Russia of course) do not participate at all in the financial sanctions triggered by the invasion of Ukraine.
Admittedly this division did not prevent the issuance of a G20 Bali Leaders’ Declaration on November 16 stating: “Most members strongly condemned the war in Ukraine and stressed it is causing immense human suffering and exacerbating existing fragilities in the global economy—constraining growth, increasing inflation, disrupting supply chains, heightening energy and food insecurity, and elevating financial stability risks.”
Yet only advanced economies have joined the sanctioning process, even if to a varying extent, whereas emerging economies (except for South Korea) are not involved. This illustrates how fragmented the world has become and contrasts with the G20 momentum created by the global financial crisis—during which the entire group was largely on the same page in crafting a robust response.
—Marc-Olivier Strauss-Kahn is a nonresident senior fellow at the GeoEconomics Center and a former director general and chief economist for the Banque de France.
6,000
PIECES OF EQUIPMENT LOST BY THE RUSSIAN MILITARY SINCE THE UKRAINE INVASION
In October, a US government report found that the Russian military lost six thousand pieces of equipment since invading Ukraine in February. The imposition of Western sanctions has made it difficult for Russia to acquire the supplies and foreign parts it needs to repair or maintain this lost equipment, which includes items such as tanks, armored personnel carriers, and infantry fighting vehicles. This six thousand figure is important because it offers a tangible example of how sanctions can undermine a country’s war machine and make it difficult to pursue its aggression. Now, because of sanctions, the Russian regime must find other costly and more complicated means of acquiring hard-to-find parts, which was a deliberate goal of the sanctions, as reported by the New York Times. Often, when analysts, the press, or even governments discuss the impact of Russia sanctions, they first look at the state of the Russian economy or currency. But those figures are not entirely affected by sanctions and can change for numerous reasons; whereas, this six thousand figure is proof that sanctions are working to achieve their stated goal—to undermine Russia’s aggression against Ukraine.
—Hagar Chemali is a nonresident senior fellow at the GeoEconomics Center and a former spokesperson for terrorism and financial intelligence at the US Treasury Department.
$300 billion
FROZEN RUSSIAN CENTRAL BANK RESERVES
This is the amount of Central Bank of Russia (CBR) reserves that Group of Seven (G7) nations and the European Union (EU) have immobilized since Russia’s invasion of Ukraine. In response, CBR Governor Elvira Nabiullina pledged to file legal claims in order to recover the reserves, but she has yet to set a timeframe to do so. Meanwhile, experts and policymakers on both sides of the Atlantic have discussed seizing frozen Russian reserves and using them for Ukraine’s reconstruction. However, this effort is hindered by laws in the EU and other sanctions-wielding countries. Confiscating frozen assets is allowed only in case of criminal conviction, and even then, getting each case through the court could take years.
But even before it could seize the frozen assets, the West still has to identify where the blocked assets are. Sanctioning jurisdictions are publishing reports at their own pace on how much Russian reserves they have immobilized, but a multilateral effort is essential to identify the rest. We are hearing that the US government is certain about the location of only a third of the three hundred billion dollars, and it is working to find the rest.
Sanctioning the CBR and blocking its assets held in Western central banks took Moscow by surprise. However, the policy hasn’t delivered the punch to the gut that it might have. At least not yet. The West has options now to make it truly hurt.
—Maia Nikoladze is a program assistant at the Economic Statecraft Initiative within the GeoEconomics Center.
$60
PRICE CAP ON RUSSIAN OIL
On December 5, the G7-led price cap on Russian oil exports came into force. The decision to place the initial cap at sixty US dollars per barrel was reached only a few short days beforehand. EU member states that had pushed for a much lower cap managed to secure a last-minute drop from sixty-five.
Wary of adding more complexity to an already tense market, the policy’s original backers in the US Treasury are reasonably happy with a cap that is close to the average price Russia has been selling at over the past six months. In their view, this locks in a discounted price, which has already cost Moscow billions in lost revenue and which new buyers of Russian oil such as India will unashamedly use as they negotiate contracts.
Implementation relies on Western providers of insurance and shipping services, which must ask buyers of Russian oil for attestations that they have paid at or below the cap. So far, energy markets seem to understand the guidance that has been issued and we haven’t seen any major price swings. This doesn’t rule out snags that could fuel fears over supply, such as the recent situation where Turkish authorities started demanding proof of insurance from all tankers flowing through the Bosphorus.
—Charles Lichfield is the deputy director of the GeoEconomics Center.
42%
GROWTH OF WESTERN SANCTIONS PROGRAMS
This year produced one of the most significant sanctions programs ever devised, both in terms of the scale of the economy where sanctions were imposed, as well as the speed and comprehensiveness of the tactics used. Despite the fact that Western sanctions programs expanded by 42 percent in 2022, there are still substantial sectors where Russia trade continues and has grown in some instances. The one absent element of an effective sanctions program has been enforcement—which has been severely lacking in the United States, United Kingdom, and EU against violators of the Russia sanctions. There has yet to ever be an EU sanctions enforcement action, and some nations don’t even have the legal authority to levy sanctions. Enforcement in the United States, which historically has led the world in monetary fines, has dropped substantially in each of the past three years. While cases typically take time to build, early moves to highlight and penalize sanctions violators could serve the objective of continuing to put on notice those that would try to still carry out certain business with Russia.
—Daniel Tannebaum is a nonresident senior fellow in the GeoEconomic Center’s Economic Statecraft Initiative and a partner in Oliver Wyman’s Risk and Public Policy Practice, where he leads the firm’s Global Anti-Financial Crime Practice.
60
COUNTRIES IN AN ADVANCED STAGE OF CBDC DEVELOPMENT
Sixty countries globally have reached an advanced stage of central bank digital currency (CBDC) development. As of November, the United States is one of them.
Eighteen of the G20 countries have CBDCs under development, piloted, or fully launched, as reported in our Central Bank Digital Currency tracker. Motivations differ globally for CBDC exploration, from concerns about international standards setting to efforts at improving financial inclusion. The logistical difficulties of sending physical COVID-19 stimulus checks called attention to inefficiencies in US payment systems. By harnessing technology, including the blockchain, central banks may be able to develop payment systems that are quicker, cheaper, and safer. In November, the New York Federal Reserve released a white paper explaining that it was starting to test a wholesale (bank-to-bank) CBDC in cooperation with the Monetary Authority of Singapore. In doing so, it joined the European Central Bank, which is already in the development stages for a retail digital euro. A pilot program for China’s digital currency, the e-CNY, began in 2020 and has now expanded to over two hundred million users.
With the risks of cryptocurrencies and stablecoins front and center in the news, attention may turn more and more to central banks. CBDC development, and what the United States does next, will play a major role in the future of payments in 2023.
—Sophia Busch is a program assistant at the GeoEconomics Center.
$52 billion
NEW US SEMICONDUCTOR TAX INCENTIVES AND SUBSIDIES
The Biden administration has declared US dependence on advanced semiconductors produced in Taiwan as “untenable and unsafe” (in the words of Commerce Secretary Gina Raimondo) because of the threat to the country from neighboring China. As a result, the administration in 2022 prioritized the passage of the CHIPS and Science Act, which was signed into law in August. The law provides fifty-two billion dollars of subsidies and tax incentives to promote the development of cutting-edge semiconductor factories on US soil. One of the projects taking advantage of that funding is being undertaken by Taiwan Semiconductor Manufacturing Corporation (TSMC), which currently produces over 90 percent of the most sophisticated chips in the world in Taiwan. When TSMC’s Phoenix plant reaches full capacity in the next two years, it will produce about twenty thousand wafers of semiconductors each month. That will only represent less than 1.6 percent of the company’s current monthly output of 1.3 million wafers. Reducing dependence on Taiwan will remain a long way off.
—Jeremy Mark is a nonresident senior fellow at the GeoEconomics Center and former official at the International Monetary Fund (IMF) and reporter for the Wall Street Journal.
7, 1, and 2
EU MEMBERS, US EXECUTIVE ORDERS, AND CONGRESSIONAL HEARINGS, RESPECTIVELY, DEVOTED TO NEW INVESTMENT SCREENING MEASURES
Investment screening regulations continued to proliferate, strengthen, and expand in 2022. Seven EU member states drafted, introduced, or started consultation processes for new investment screening authorities this year (Belgium, Croatia, Estonia, Greece, Ireland, Luxembourg, and Sweden). In the United States, the Biden administration issued the first executive order designed to provide clarity over the process by which the Committee on Foreign Investment in the United States (CFIUS) evaluates the national-security implications of foreign acquisitions of US businesses. And this fall saw two congressional hearings on the prospects of creating a CFIUS-like process for outbound investment. Look out for increased regulation over both inbound and outbound investment among major economies in 2023.
—Sarah Bauerle-Danzman is a nonresident senior fellow with the GeoEconomic Center’s Economic Statecraft Initiative and associate professor of international studies at Indiana University.
$3 million
AMOUNT OF GOODS TRADED PER MINUTE BETWEEN THE UNITED STATES, CANADA, AND MEXICO
North America is still the commercial dynamo for the United States, with over three million dollars per minute in goods traded between the United States and its two neighbors through September of this year.
Canada and Mexico are the top two US trade partners, together accounting for more than twice what the United States trades with China. North American trade is growing at double digits within the framework of the US-Mexico-Canada agreement (USMCA), which came into effect in 2020.
In the most recent study available, North American trade was estimated to support more than twelve million US jobs in 2019 and millions more in Mexico and Canada.
North America is demonstrating the clear potential to emerge more competitive globally vis-a-vis China and other commercial powerhouses, as the world transforms following the pandemic, the war in Ukraine, and other disruptions. The question will be how well the United States, Canada, and Mexico can work through differences and seize the opportunities to maintain the impressive commercial growth that can boost the continent’s prosperity and well-being.
—Earl Anthony Wayne is a nonresident senior fellow at the GeoEconomics Center and a former US ambassador to Mexico.
60%
PROPORTION OF LOW-INCOME COUNTRIES AT RISK OF DEBT DISTRESS OR DEFAULT
A staggering and concerning 60 percent of low-income countries are currently at risk of debt distress or debt default, according to the IMF. If a series of low-income countries were set to default, it is possible the IMF would not have enough resources to to disburse the loans these countries would need to keep afloat. The G20 had a plan to deal with the problem called “the common framework.” It was supposed to be a way to help countries restructure their debt and involve the world’s largest bilateral creditor, China. But only a handful of countries have used the system—largely because it’s slow and private creditors haven’t fully signed on. This number is a flashing red light for the global economy headed into 2023.
—Josh Lipsky is the senior director of the GeoEconomics Center.
45 million
PEOPLE EXPECTED TO FACE STARVATION GLOBALLY
Forty-five million people are expected to face starvation by the end of 2022. A series of economic shocks sent global food prices to an all-time high in 2022 and curbed households’ ability to pay for sustenance. Extreme global uncertainty and the prospect of sudden unemployment resulted in food hoarding in 2020 during the pandemic. The supply-chain constraints of 2021 then dramatically increased transport costs for those items. And Russia’s invasion of Ukraine at the beginning of 2022 unexpectedly eliminated large volumes of food items from the global market overnight. In the past year, food insecurity was exacerbated by export bans by other major grain producers, weakening currencies, and accelerating inflation around the world. The threat of a global recession next year now looms large over hundreds of millions of people who are struggling to fulfill basic human needs.
—Mrugank Bhusari is a program assistant at the GeoEconomics Center.
8 billion
WORLD POPULATION
In November, the world’s population surpassed eight billion and is expected to continue to rise as life expectancy increases around the world and fertility rates remain high in several regions, primarily sub-Saharan Africa and South Asia. The geoeconomic and development implications are stark and are compounded by the lingering effects of COVID-19 as well as climate change and conflict. The world’s people and resources are not distributed equally, and inequality within and among countries is rising. Ever-expanding cities seek to capitalize on the benefits of agglomeration while managing the resulting stress on infrastructure and services. At the same time, in lower- and middle-income countries—which tend to be the most populous—food, health, and education systems struggle to meet expanding and evolving needs.
Younger and older people tend to bear the brunt of the challenges associated with population growth, especially in terms of economic opportunity as job creation fails to keep pace with the number of labor market entrants, and digitization, automation, and the changing nature of work put worker longevity and job security at risk. However, history and emerging evidence show that strategic economic and environmental policies combined with investments in human capital, lifelong learning and wellbeing, and technologies that increase innovation and productivity are what enable the accumulation of earnings and intergenerational wealth. That catalyzes consumption and can harness larger populations toward demographic dividends and sustainable, inclusive growth.
—Nicole Goldin is a nonresident senior fellow at the GeoEconomics Center and global head of inclusive economic growth at Abt Associates.
41
COUNTRIES WITH CURRENCIES PEGGED TO THE DOLLAR OR EURO
To combat inflation, central banks representing nearly three-quarters of the global economy, measured by gross domestic product (GDP) weight, increased their benchmark interest rates in 2022. Most noticeably, this was done by the US Federal Reserve (the Fed), European Central Bank (ECB), and Bank of England, together accounting for 42 percent of global GDP. The Bank of Japan, People’s Bank of China, and Central Bank of the Republic of Turkey were among the few central banks cutting their benchmark interest rates in 2022. When it comes to central bank rate hikes, it is important to note that forty-one countries have their currencies pegged to the US dollar and/or euro. To protect the peg while also allowing for the free flow of capital, these economies have no choice but to increase their domestic interest rates on par with the Fed and ECB—even if domestic inflation is not a concern for their economies—therefore reducing their growth potentials. Oil and gas exporting countries of the Persian Gulf are among these economies.
—Amin Mohseni-Cheraghlou is the macroeconomist at the GeoEconomics Center and an economics professor at American University.
1-1-1
NEARLY THE SIMULTANEOUS VALUE OF THE DOLLAR, EURO, AND POUND IN SEPTEMBER
On September 28, 2022, the US dollar, euro, and British pound were closer to a triple parity than ever before. The dollar had appreciated against most currencies throughout the year, reflecting the relative strength of the US economy, the Federal Reserve’s determination to bring inflation down by sharply raising overnight interest rates, and a flight to safety after the start of the Ukraine war. European inflation has been more strongly tied to energy, and the ECB was therefore slower to embark on a tightening cycle, helping the dollar breach parity to the euro in August for the first time in twenty years. And in late September, the pound fell to the lowest ever value against the dollar after the short-lived government of Prime Minister Liz Truss presented its inflationary tax-cut proposals and the Bank of England had to prevent a collapse in the UK government bond market. Both the euro and pound have rebounded since, but for a short moment the three currencies were only a few basis points away from being valued equally.
—Martin Mühleisen is a nonresident senior fellow and former chief of staff and strategy director of the IMF.
21.5%
PROJECTED PROPORTION OF ESG INVESTMENTS IN 2026
The share of global environmental, social, and governance (ESG) investments as a proportion of total assets under management is projected to increase from 14.4 percent in 2021 to 21.5 percent in 2026.
ESG funds, which evaluate how well companies are managing risks and opportunities related to environmental, social, and governance issues, are growing rapidly to become the new default choice for investors. As investors refocus their long-term investment strategies, the demand for ESG funds is out-stripping the existing supply. Asset managers looking to deliver investor success and survive turbulent investment markets are embracing ESG funds as the best way to differentiate their products in the future. These emerging global trends in the asset and wealth management industry—led by the United States—provide a critical reality check on swiftly evolving investor priorities and an important counterweight to concerns that recent anti-ESG rhetoric and legislation were taking some of the steam out of enthusiasm for impact investing. ESG funds are the next big thing.
—John Forrer is a contributor to the GeoEconomics Center and director of the Institute of Corporate Responsibility at George Washington University
357 million
GLOBAL COVID-19 CASE NUMBERS
For most of the world, 2022 was the year the pandemic became endemic. While COVID-19 case numbers continue to soar, with year-over-year cases increasing by nearly 75 percent in 2022, deaths have sharply declined by some 67 percent when compared to 2021. At the same time, the pandemic remains one of the foundational trends shaping the global policy landscape—complicating a range of issues from Russia’s invasion of Ukraine to a potential global recession. In the United States, COVID continues to moderate economic productivity with a recent National Burea of Economic Research working paper estimating that people’s unwillingness to be in close proximity with others reduced labor force participation by 2.5 percent in the first half of 2022. This translates to roughly a $250 billion drop in potential output—or around 1 percent of GDP. COVID’s sweeping impact is most prominently playing out in China, which in recent weeks has been rocked by the most widespread protests in decades following nearly three years of periodic lockdowns and dampening economic prospects.
—Niels Graham is an assistant director at the GeoEconomics Center.
$381 billion
REDUCTION IN THE FED’S BALANCE SHEET
The US Federal Reserve has reduced the size of its balance sheet in 2022 by $381 billion, draining liquidity from the financial system. This quantitative tightening (QT) policy aims to support the contractionary impact of the Fed’s interest-rate hikes to rein in inflation. At the current pace, the Fed will shed $1.6 trillion in assets by the end of 2023, reducing its overall balance sheet by roughly 18 percent. While it remains difficult to measure QT’s impact, a reduction of that size could tighten financial conditions significantly. This matters because it might allow the Fed to forego a rate hike in 2023 and/or start decreasing interest rates earlier. QT targets long-dated assets that have an outsized influence on equity and bond markets. A severe recession or the Fed’s desire to ease financial conditions could all spell an early end to QT. This is a space to watch in 2023.
—Ole Moehr is a senior fellow and consultant with the GeoEconomics Center.
1.5 million
US MANUFACTURING JOB GROWTH
That’s how many manufacturing jobs have been created in the United States since April 2020 (when manufacturing employment was at a record low) to reach a total of 12.9 million manufacturing jobs as of November 2022. US manufacturing employment started out at nine million in 1940 and rose steadily to a peak of 19.5 million in July 1979. The US then lost 8.1 million manufacturing jobs in the following four decades, a result of the hollowing out of the US manufacturing base due to the offshoring of manufacturing to other countries, in particular China. Since early 2020, pro-manufacturing policies in the US seem to have reversed the declining trend. It remains to be seen if this nascent recovery will be strengthened in the future as a result of efforts to attract high-tech manufacturing activity back to the United States with incentives provided to companies in the US CHIPS and Science Act and the Inflation Reduction Act.
—Hung Tran is a nonresident senior fellow at the GeoEconomics Center and a former IMF official.
260%
INCREASE IN PARTIES NAMED ON THE ENTITY LIST
Year to date, the US Commerce Department has designated 390 parties to the Entity List, a 260 percent increase over the designations made in 2021. Along with various other export-control mechanisms, Entity List designations are increasingly used to promote US national security and foreign-policy interests by restricting the target parties from receiving certain, or in some cases all, items subject to US regulation. Because US export controls are primarily property-based, these restrictions can be effective in covering gaps left by trade and economic sanctions, which may not apply to certain foreign parties whose dealings in US-regulated products, technologies, or software could benefit US adversaries.
Unsurprisingly, the vast majority of Commerce’s Entity List designations in 2022 involved parties in Russia. Notably, parties elsewhere, including in certain US ally countries such as the United Kingdom and Spain, were listed for having acquired or attempted to acquire US-regulated products in support of Russia’s military, defense industrial base, or strategic ambitions. China was also heavily targeted by designations that took aim at parties involved in certain semiconductor manufacturing activities. Whether the swell in designations continues over time remains to be seen, but it seems likely that Commerce will continue to use the Entity List in furtherance of efforts to limit Russia’s and China’s military and advanced manufacturing capabilities. In addition, Commerce has the authority to designate parties whose host governments fail to facilitate US security-driven end-use verifications, as well as those involved in human rights, cybersecurity, and spyware-related threats. Regardless of the final numbers, the Entity List is a score worth tracking in 2023.
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