November 12, 2013

World Economy, 2012

I am preparing a class on Business and Philosophy, and in this context I am surveying key statistics of the world economy. Our world is shaped by economic trends and developments, and some of these numbers are really interesting. The large economic blocks, like Europe, the US, South America, China, India, or Africa, move in relation to each other like giant pieces of a puzzle, and the resulting plate tectonics sometimes causes seismic economic, social, and political tensions. Even with strong and sustained growth in places like Africa or India, the economic gaps remain almost insurmountable. These forces shape people’s lives, and create the world-wide power structure for the early 21st  Century.

World politics today is dominated by large regional blocks, and smaller independent nation players have a hard time asserting themselves (See my article on Russia.) The situation is not as antagonistic as it was during the East versus West confrontation of the Cold War period, and the threat of mutual destruction or all-out war is gone. Everyone realizes that we live on the same planet, and that development is not a zero-sum game. New ecological challenges have emerged that require world-wide coordination in order to address these problems effectively.

We still live in the early stages of global economic integration, and we need more functional global political institutions. International distributive justice is still a far-away dream, because the current economic inequalities reflect a 19th century world order that was dominated by political and economic imperialism. The fore-runners of industrialization, Europe and the US, have huge advantages over regions that were colonized and exploited for centuries. Africa is a good example: Half a century after gaining independence from Europe, the continent is still in the process of developing a political culture with functional structures and institutions that can catalyze social and economic development. How can democracy and good government be implemented in a region with an average poverty rate (less than $1.25/day) of 43.8% of the population?

The following statistics about key developments in the world economy for 2012 are quoted from the United Nations Department of Economic and Social Affairs, UN-DESA.

“The world economy grew by 2.2 per cent in 2012, slowing from 2.7 per cent in 2011, mainly owing to a decline in global demand, the euro area debt crisis and uncertainty over the fiscal cliff and debt ceiling in the US. The global recovery from the “triple crisis”—food, fuel and finance—is, however, expected to strengthen over the medium term.

Regional growth

Economic activity in the European Union (EU) contracted by 0.3 per cent in 2012 from 1.5 per cent in 2011 (UN-DESA, 2012). Germany’s real GDP growth rate is expected to have contracted to 0.8 per cent in 2012 after 3.0 per cent growth in 2011, while France is estimated to have grown by only 0.1 per cent, down from 1.7 per cent. The US managed growth of 2.1 per cent in 2012, reflecting stronger private consumption and investment as well as a better credit environment.

Japan’s economy improved, largely on increased construction expenditure. Economic growth decelerated in emerging economies owing to weak export demand and reduced investment growth, especially in China and India. Western Asia’s economic growth rate fell to 3.3 per cent in 2012, from 6.7 per cent the previous year, owing to sluggish external demand and public spending cuts. The Latin America and the Caribbean region grew by 3.1 per cent in 2012, down from 4.3 per cent a year earlier, as export demand tailed off and commodity prices for non-food exports fell (UN-DESA, 2012).

The global job crisis persisted in 2012 despite governments’ efforts to create employment and stimulate economic growth. World unemployment stood at 6 per cent in 2011 with joblessness at more than 8 per cent in developed economies as a group, down from 8.3 per cent the previous year. In 2012, unemployment reached over 25 per cent in countries such as Spain and Greece as austerity measures continued to take effect.

Prospects for the global economy hinge on an early exit from the euro area debt crisis, the success of bailout packages and the non-conventional monetary policies initiated to address fiscal and monetary integrity in major industrialized economies. Restoring fiscal integrity, coupled with measures aimed at reducing public indebtedness across the globe, still requires sound policy interventions.

With the global economy forecast to grow at 2.4 per cent in 2013 and 3.2 per cent in 2014, the worst of the sovereign debt crisis might be over, and most developed and emerging countries are expected to return to their growth trajectories in the medium term.

Inflation

World inflation declined from 3.6 per cent in 2011 to 2.8 per cent in 2012, and is expected to steadily decline to 2.6 per cent in 2013, mainly on sluggish aggregate demand, quantitative easing in the US, and ultra-low interest rates and extremely accommodative monetary policy stances in most countries. The combination of a weakened economic environment and falling inflation will enable governments in the US and euro area to allow further monetary easing, supporting the repair of private sector and bank balance sheets.

Fiscal trends

Fiscal balances improved in almost all major economies and regions, reflecting fiscal consolidation and austerity measures, although the pace may be derailed by economic and social pressures in many developed countries. Advanced economies cut their overall deficit from 6.5 per cent of GDP in 2011 to 5.9 per cent in 2012, with the US at 8.6 per cent and Japan at more than 10 per cent of GDP that year.

Fiscal positions for some developing regions such as the Latin America and the Caribbean strengthened as most countries continued their cautious fiscal policies while rebuilding fiscal buffers, aided by favourable export revenues.

Countries in the euro area are expected to reduce their overall fiscal deficit by only 0.8 per cent of GDP in 2013. In developing countries, fiscal deficits in 2013 are forecast to decrease, except in the Middle East and North Africa owing to reduced oil revenues caused by supply-side disruptions to oil production.

Commodities

The all-commodity price index increased in the first quarter of 2012, reaching a year-high of 202 in March 2012 as demand from developing countries rose. The world crude oil price remained high at around US$109.9 per barrel in 2012 compared to US$107.5 in 2011. The food price index surged after July as severe weather hit crops, especially in the US. Prices of sugar, cereals and rice rose the sharpest, while meat and dairy prices remained fairly flat. The index for agricultural raw materials and products such as coffee, rubber, cotton and beverages declined in 2012. Most global commodity prices are expected to stay high in 2013, despite global economic growth below potential, owing to limited supply and weather risks stemming from global climate change.

External balances

World exports grew by only 5.0 per cent by value in 2012, much less than previous year’s 17.3 per cent, as import demand from major developed countries sharply contracted. Current account balances for major economies and regions narrowed slightly in 2012, reflecting a decline in international trade and decelerating global demand, rather than any improvement in structural imbalances (UN-DESA, 2012). The US dollar and Japanese yen appreciated in the first half of the year, as the euro area debt crisis drove up global investors’ risk aversion and induced an appetite for safe-haven currencies. Global FDI moderated in 2012, while global remittance flows rose by 6.4 per cent.

Medium-term risks for the global economy

The greatest risks are difficulties in the euro area, uncertainty over tax reforms, spending cuts, the debt ceiling and high household indebtedness in the US, fiscal consolidation in most industrialized countries, economic slowdown in emerging countries and political instability, especially in the Middle East.

Policies to rectify global imbalances and ensure sound fiscal and monetary health in the global financial infrastructure remain crucial to restoring global health. The European Central Bank, for instance, has launched major policy interventions to calm the escalating crisis. These policies will, however, need to be accompanied by long-term structural reform to restore confidence in the financial sector and steer the global economy to long-term growth.”

Leave a Reply

Category

Economics, Sciences

Tags