By Ray Gamboa
The health of the US economy, the largest in the world, continues to worry most businesses as they factor out their moves for this year and the next. Unfortunately, the shadow of the Great Recession that started a couple of years ago has not totally been lifted. Thus, yearend surveys continue to show an understandably conservative view as to what the future will bring. The good news however is that optimism can already be felt in the air across America, Europe and Japan even if is tempered by caution.
A big factor accounting for this outlook is the continued high unemployment rate in the US, a predicament that greatly dampens global consumer spending and one that dictates the pace of economic growth for many export-strong countries.
The consensus remains that world recovery will be protracted and could be painful for many developed economies that were hard hit by the financial crisis, especially since many of these nations’ central banks would be starting to adopt programs to withdraw fiscal support.
Like in the US, the European Central Bank and the Bank of Japan had instituted drastic and radical reforms including a reduction of interest rates to virtually zero and the massive infusion of cheap money into the market to encourage borrowing.
Easing pains
With quantitative easing expected this year in Europe and even Japan, the eventual withdrawal of central bank support will temper any little economic growth, and may in fact cause a slowing down in gains if compared to progress made last year.
There is talk about Europe going into a double dip recession, but this is quickly pooh-poohed by key economic officials. If there is trouble ahead, many are inclined to believe that this will come from a failure to positively manage the debts of many member countries of the European Union.
Rising Asia
As the developed world battles with its problems of debt and unemployment, emerging economies are expected to grow at more robust rates. China for one continues to lead the way as it fuels its growth engines towards higher productivity.
Government and consumer debt among emerging economies will continue to be manageable, in sharp contrast to what the US, Europe and Japan are currently experiencing.
If there is one issue that may hound China, India and other fast-growing economies, it is inflation. However, prudent fiscal measures put in place at the right time will help let off steam that could result from an overheated economic growth. The balance of power will still gradually shift from developed to emerging economies during the coming decade, more so in view of estimates that the world’s once-mighty economic powers will need from five to 10 years to recover from the financial crisis. In the meantime, investors will continue to throw in their support to emerging economies whose growth rates are expected to rise over the next decade.
G-20 discord to continue
As the shift in power becomes more apparent across the globe, the meeting of developed and emerging countries in Seoul under the Group of Twenty (G-20) banner last November ended without having accomplished much. Hopes to settle outstanding issues, including those left unresolved during the Doha talks, were not realized. In fact, not much had been gained as G-20 members continued to disagree on how to address the needed reforms in the global financial sector.
Currency differences are becoming a major irritant, more so now that the U.S. seems poised to do a “China” by protecting the dollar, and which hopefully would help the beleaguered economy get back to its feet. As expected, countries benefiting from the U.S.’s problems are crying foul over what they term as a manipulative move.
Emerging issues
Finally, as the world embarks on its journey through another decade, a number of global issues remain outstanding. First and foremost is the environment, or the perceived issue of global warming and radically changing climes.
Corollary to this is the issue of sustainable energy, which goes without saying the future price of oil as the world continues to be unable to shift away from massive use of finite energy fuels to feed manufacturing and transport engines.
There is talk that a barrel of oil will likely rise to $100 within the next years, and will remain at such levels for the longer term. This is expected to bring a new paradigm shift to how the world will define future growth.
Lastly, as had been mentioned earlier, there is a need for the world’s big economies – both developed and emerging – to agree to financial reforms that will prevent the recurrence of a global financial crisis similar to what had happened during the last decade.
(Courtesy: The Philippine Star, 10 January 2011)
