Sorry, folks – Global economy is still in recession
It is not surprise that global economy is still in recession. There have been two major stages of the most serious crisis since the Great Depression. BNP Paribas firstly made an announcement that they were ceasing activity in three hedge funds that specialized in US Mortgage debt. The banks did not how big the losses were. On 15 September 2008, this was the time that the US government allowed the investment bank ‘Lehman Brothers’ to go bankrupt. There was also an interesting mindset among the major investment bank houses saying – they are ‘too big to fail’ and expected the government bailout. This held no longer true that the threat of a domino effect through global financial system was forthcoming.
Furthermore, On 5 August 2011, there was whooping new that S&P downgraded triple rating (AAA) of the United States during the weekend and was no longer classed as top-notch and the American bond yield will unlikely rocket in coming times. It came to my mind that it would be seen as opportunity for rapid growing economies such as China and India mainly. These economies will bounce back from a part of global recession with substantial economic growth and constant developments. This assumption is based on conditionality of “Any country with mountains of foreign reserve and the possibly lowest budget deficit will position themselves.” (Naroo Kim, 2011) The Economist published an interesting article on September issue what $ 3 trillion Chinese foreign reserve could do. (The Economists, 2011)
Threatening the West ?
If you ask me whether these growing economies are dangerous. My cynical answer is ‘Yes’ – watch out. Why? Look at the list of shopping list for China with their foreign reserve? Buying off all Portugal, Ireland, Italy and Spain debt? Or Buy this year’s projected oil output and drive the oil market as they wish? This raises very important points for Europe and the United States. The economy need to bring their intervention with an acute eye to re-shape the economy to prevent European Credit Crunch, which I believe that is imminent. Hence, rapid growing economies will have somewhat a huge impact on rebalancing the global economy outlook of global economy and may lead the economic growth. For Europe and the US, it is a real time without further postponement to restore their confidence and work hard beyond their expectation to fix what has gone wrong for a long time.
Oh, My God! - It’s really happening
Danny Quah, a professor at London School of Economics and also a member of the World Economic Forum on Economic Imbalances. One of his studies grasped my attention with a headline of ‘The Great Shift East’. His study argues that there is clearly more economic activity in Asia and also mapped out the evolution of world’s economic centre of gravity from 1980 through 2049. According to Professor Danny Quah;
(source: Danny Quah, 2011)
Economic centre of gravity is defined as the spot within the globe, which represents the “average location” of global GDP. For example, if there were only two locations anywhere in the world producing any GDP, New York and Beijing, and they produced the same amount of GDP in each city, then the centre of gravity would lie within the surfaces of the globe exactly halfway between New York and Beijing. The first dot on the left is where the centre of gravity in 1980s, somewhere between Europe and US. The black dot on the far right is where it was located in 2008. And the red dot shows where is projected to be in 2050. It has moved a long way east already, will move a lot further east in future decades. (Danny Quah, 2010)
But, Western economists (e.g. William Easterly and Greg Mankiw) says, “ West should not be worried” based on their thought that the west and the East are not competing for a fixed amount of Global GDP, and free trade between them will mean that both can become richer than they would be without the free trade. Also, rapidly growing economies are growing at breathtaking scale and is happening so quickly as it is shown on the graph below.
(Source: FT, IMF, 2010)
I do not totally believe in the collapse of financial sector in 2008 did cause widening gaps in GDP growth between emerging countries and developed countries. There was an obvious tipping point from beginning of 2001. I do not say with confidence of course. But, if these two lines show interconnections, the global order and economy will see many issues that has not ever discovered, yet with an same objective of all – A great era with more growth as one economy within all countries on globe rather than classifying the global economy as the west and the east as if they are competitors for a death.
I do not totally believe in the collapse of financial sector in 2008 did cause widening gaps in GDP growth between emerging countries and developed countries. There was an obvious tipping point from beginning of 2001. I do not say with confidence of course. But, if these two lines show interconnections, the global order and economy will see many issues that has not ever discovered, yet with an same objective of all – A great era with more growth as one economy within all countries on globe rather than classifying the global economy as the west and the east as if they are competitors for a death.
Source 1- FT
Source 2- Danny Quah, LSE
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