Skip to main content

An economic turnaround?

A funny thing happened on the way to the decline of the United States and the rise of China, Brazil and
other emerging markets: Many prominent analysts began wondering if the pessimistic predictions about America were wrong — and whether it was the emerging markets that were heading for trouble.
These international economic fads are always suspect, up or down. They seem to follow what I was told years ago (facetiously) was the guiding rule for columnists: Simplify, then exaggerate. So beware this latest revisionism, just like any other variety.
But there are some startling new assessments of global economic trends that stand the “declinist” wisdom of recent years on its head. The revisionists argue that U.S. economic fundamentals are now stronger than they seemed, and that those of the BRICs — the emerging giants Brazil, Russia, India and China — are weaker.
Certainly, the financial markets are registering this new view. The Morgan Stanley Emerging Markets Index fell 5 per cent last year, compared to a nearly 30 per cent gain for the U.S. benchmark Standard & Poor’s 500 index. Meanwhile, the International Monetary Fund predicted Tuesday that economic growth will rise this year and next in America, and decline both years in China.
One influential revisionist has been Antoine van Agtmael, the economist who coined the hopeful term “emerging markets” in 1981. Van Agtmael has written several blistering assessments recently about the former rising superstars.
“A few years ago there was a widespread feeling that the developed world had fallen off its pedestal — that Asia had not only escaped the global financial crisis but that its system was somehow superior. That overconfidence seems gone now. Instead there is a sense of vulnerability,” he wrote in Foreign Policy in June 2012. “The despair and fear felt by many in the United States is misplaced. In fact, there are early signs that the United States may be regaining some of its lost competitiveness in manufacturing and that China is losing some ground.”
The reversal of expectations was summarised last month in a report by Goldman Sachs titled “Emerging Markets: As the Tide Goes Out.” The authors warned that economic difficulties in China, Brazil, Russia, Turkey and other investment darlings aren’t just cyclical but require “a significant reassessment of emerging market countries” and an expectation of “underperformance and heightened volatility over the next 5 to 10 years.”
China is the bellwether, and here the Goldman Sachs report echoed themes cited by China’s own leaders: the country’s unbalanced growth; its demographic decline, with fewer young workers resulting in higher labour costs; its potentially deadly pollution problems; and its financial weaknesses. This last theme was highlighted in a December report by China’s Academy of Social Sciences, which noted that local-government debt reached the “alarming level” of about $3.3 trillion by the end of 2012, double what it was in 2010.
This municipal credit bubble poses a delicate dilemma for Chinese leaders: The country’s growth is slowing, with the IMF projecting that it will fall from 7.7 per cent last year to 7.5 per cent in 2014 and 7.3 per cent in 2015. As the rate of growth shrinks (especially compared to its double-digit expansion of a decade ago), there’s a danger the local-debt balloon will pop, with significant social and political repercussions.
Brazil is another “economic miracle” that’s getting a sceptical new look. The Goldman Sachs report cites the country’s problems of high taxes, costly and distorting government subsidies and low labour productivity. Financial markets have taken note, with Brazilian equities, currency and local debt all falling by double-digits last year.
One surprising new problem economy is Turkey, another stellar performer over the last decade. Because of its heavy external debt, estimated at about 45 per cent of its gross domestic product, “Turkey is one of the economies most vulnerable to a shift in sentiment away from emerging markets,” notes Goldman Sachs. Turkey has new domestic political strains, too, as Prime Minister Recep Tayyip Erdogan, the Superman of a few years ago, copes with a domestic corruption scandal and the fracturing of his Islamist political base. Some analysts predict Erdogan will face a challenge from Turkey’s popular President Abdullah Gul.
As global competitors stumble, the U.S. has been picking up speed. Remarkable new shale oil and gas discoveries have reduced America’s energy vulnerability and made it a relatively low-cost manufacturing nation. It was a telling example of the new mood that The Wall Street Journal titled an article last year about van Agtmael and other revisionists: “Is the U.S. the Next Hot Emerging Market?” — © 2014. The Washington Post
Revisionists argue that U.S. economic fundamentals are now stronger than they seemed, and that those of the BRICs are weaker

Comments

Popular posts from this blog

SC asks Centre to strike a balance on Rohingya issue (.hindu)

Supreme Court orally indicates that the government should not deport Rohingya “now” as the Centre prevails over it to not record any such views in its formal order, citing “international ramifications”.

The Supreme Court on Friday came close to ordering the government not to deport the Rohingya.

It finally settled on merely observing that a balance should be struck between humanitarian concern for the community and the country's national security and economic interests.

The court was hearing a bunch of petitions, one filed by persons within the Rohingya community, against a proposed move to deport over 40,000 Rohingya refugees. A three-judge Bench, led by Chief Justice of India Dipak Misra, began by orally indicating that the government should not deport Rohingya “now”, but the government prevailed on the court to not pass any formal order, citing “international ramifications”. With this, the status quo continues even though the court gave the community liberty to approach it in …

Khar’s experimentation with Himalayan nettle brings recognition (downtoearth)

Nature never fails to surprise us. In many parts of the world, natural resources are the only source of livelihood opportunities available to people. They can be in the form of wild shrubs like Daphne papyracea and Daphne bholua (paper plant) that are used to make paper or Gossypium spp (cotton) that forms the backbone of the textile industry.

Nothing can compete with the dynamism of biological resources. Recently, Girardinia diversifolia (Himalayan nettle), a fibre-yielding plant, has become an important livelihood option for people living in the remote mountainous villages of the Hindu Kush Himalaya.

There is a community in Khar, a hamlet in Darchula district in far-western Nepal, which produces fabrics from Himalayan nettle. The fabric and the things made from it are sold in local as well as national and international markets as high-end products.

A Himalayan nettle value chain development initiative implemented by the Kailash Sacred Landscape Conservation and Development Initiati…

India’s criminal wastage: over 10 million works under MGNREGA incomplete or abandoned (hindu)

In the last three and half years, the rate of work completion under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) has drastically declined, leading to wastage of public money and leaving villages more prone to drought. This could also be a reason for people moving out of the programme.

At a time when more than one-third of India’s districts are reeling under a drought-like situation due to deficit rainfall, here comes another bad news. The works started under the MGNREGA—close to 80 per cent related to water conservation, irrigation and land development—are increasingly not being completed or in practice, abandoned.

Going by the data (as on October 12) in the Ministry of Rural Development’s website, which tracks progress of MGNREGA through a comprehensive MIS, 10.4 million works have not been completed since April 2014. In the last three and half years, 39.7 million works were started under the programme. Going by the stipulation under the programme, close to 7…