Global Economy Reviews
06.05.2011 20:45 World Economy Review - April 2011
The International Monetary Fund (IMF) recently made a bold prediction that China will exceed the United States and become the world`s largest economy as early as 2016 in terms of purchasing power parity. This prediction seems to add new evidence to the popular statements made by some western analysts who believe China`s rise is the main cause for the decline of the United States.
"Is the United States really on its wane?" "Will China`s rise mainly lead to the decline of the United States?" Experts on international issues in Beijing pointed out that the proposition and judgment regarding the decline of the United States is controversial. Even if the United States is coming down, China`s rise is not the main reason.
The IMF`s prediction shows that according to the current growth rate, China`s economic size will reach 19 trillion U.S. dollars in 2016 in terms of purchasing power parity while the U.S. economic size will reach 18.8 trillion U.S. dollars in 2016. Therefore, China will exceed the United States and become the world`s largest economy.
"We will reach different conclusions from different angles regarding the proposition of the decline of the United States. I think, more specifically, U.S. power is now in the state of absolute growth and relative decline," said Ni Feng, deputy director of the Institute of American Studies under the Chinese Academy of Social Sciences.
Ni said that the United States showed a significant economic growth over the past decade, moving ahead of other developed economies such as the European Union and Japan, while the faster development of emerging economies indeed has brought the phenomenon of the relative decline of the United States.
However, Ni also stressed that the relative decline of the United States is mainly embodied in the economic field. The downward trend in fields such as politics, military affairs and science and technology is not obvious, and its performance in some fields has even become more outstanding.
Data shows that despite the severe economic downturns caused by the collapse of the Internet bubble in 2001 and by the international financial crisis from 2008 through 2009, the GDP of the United States, calculated at constant prices, was up 21 percent during a period from 2000 to 2010. Some economic indicators of the United States have dropped compared with other countries in the world. The proportion of U.S. GDP to the total GDP of the 19 other G20 countries stood at 61 percent in 2000 and dropped to 42 percent in 2010. The U.S. GDP was more than eight times that of China in 2000 and was less than three times that of China in 2010. "The U.S. GDP share of the world`s total was once more than 50 percent after the second world war and stands at around 25 percent today. The strength of the United States by GDP has indeed comparatively declined, causing the United States to give up "the dominance of global economic affairs" and seek "multilateral cooperation" to deal with international economic issues."
The G20 including members such as the United States, Japan, China and India has become a major platform for managing the world economy. During the reforms of the World Bank in April 2010, developed countries shifted more than 3 percentage points of voting rights to developing countries. In October 2010, the IMF passed a reform plan transferring 6 percentage points of voting rights to underrepresented countries including emerging countries. With the continuous development of China-U.S. ties and in-depth changes in the international situation, the mechanisms such as the China-U.S. strategic and economic dialogue have emerged.
Yang Bin, an economist at the Chinese Academy of Social Sciences, said that the international financial crisis and the fall in the economic influence of the United States can be considered a reflection of the "decline" for the United States. However, the key reason behind the "decline" is not the "rise of other countries" but fundamental defects in its economic system and structure.
Yang said that the United States currently features a growing scale of financial monopoly capital, the deepening of economic "financialization," "virtualization" and "hollowing out," as well as the increasing share of speculation in economic activities, the excessive concentration of wealth to financial oligarchs and continued high unemployment rates. "The international financial crisis is just a warning. If the United States does not change its neo-liberal economic system and development mode, the deterioration in its economic strength will continue," Yang said.
The U.S. economy has been faced with increasingly deteriorating problems of high fiscal deficits, high trade deficits, and high debts for a long time. The United States has been the world`s largest debtor nation since the 1980s, but has managed to maintain economic growth by overusing the dollar hegemony, running up huge debts, and printing bills beyond reasonable bounds, which led to a lopsided financial development and a declining manufacturing industry.
Manufacturing, the principal part of a real economy, only accounts for about 10 percent of U.S. GDP and corporate profits. By contrast, service industries, mainly consisting of the financial services industry, account for around 80 percent of the country`s GDP. The financial and real estate services industries generate over 40 percent of U.S. corporate profits.
The "financialization" of the U.S. economy is in fact "virtualization" and "parasitism." The value of the dollar against other major currencies has dropped significantly. When the dollar falls below a psychologically important level and loses its privileged status, foreign capital will withdraw from the United States quickly, leaving the U.S. economy at risk of collapse.
"The United States` economic power and influence keep falling due to its own perennial problems and the rapid development of emerging economies. While GDP is a good measure of the size of the economy, it cannot reflect the comprehensive national strength of a country. The United States is not really in decline if we fully consider its innovative strength, amount of core technologies, military strength, and other aspects," said Zhu Feng, a professor at the School of International Studies under Peking University.
U.S. military spending has been almost as much as the combined spending of all other countries in the world for many years. According to the statistics recently published by the Stockholm International Peace Research Institute, U.S. military spending rose nearly 3 percent to 698 billion U.S. dollars in 2010, more than that of any other country in the world. Worldwide military spending increased by 20.6 billion U.S. dollars last year, and the United States alone accounted for 19.6 billion U.S. dollars of the increase.
Thanks to its enormous economic size and large lead in business and technology, the United States topped world competitiveness rankings over the past many years. According to statistics from the World Intellectual Property Organization, the United States remained the world`s largest international patent applicant with 44,855 patent applications filed in 2010.
The "China`s National Competitiveness Report" blue book released by the Chinese Academy of Social Sciences in 2010 pointed out that the United States still has a relatively large overall competitive advantage, and its advantages in aspects such as global connections and the human resource structure are even more outstanding.
The blue book said that in the context of globalization, China`s development took the road of "inclusive growth" and needs a fair, cooperative and open environment. It is inadvisable to equate the prosperousness of China`s economy and the enhancement of China`s competitiveness with the so-called "China threat theory."
Zhu said that it will not bring substantive changes in the international security system even if China`s GDP ranks first worldwide. Measuring the international security system needs to consider more on various aspects such as alliance, overseas troops, delivery capacity of military power, and the breadth and density of global security partners. China currently has no capacity and desire to change the existing international security system.
"China will unswervingly follow the path of peaceful development and continue to develop through striving for a peaceful international environment, and will also safeguard and promote world peace with its own development," said President Hu Jintao during his visit to the United States at the beginning of 2011.
02.04.2011 13:39 World Economy Review - March 2011
Fitch Ratings cut its global economic growth forecasts for this year and next due to the impact of rising oil prices and the earthquake and tsunami in Japan. The ratings company lowered its projections for growth in the U.S., Japan and the euro area for 2011 and said global expansion will slow to 3.2 percent from 3.8 percent in 2010, according to a report published in London today.
Crude oil prices have surged about 32 percent in the past six months, squeezing companies` profits and undermining demand. At the same time, the resulting surge in inflation from higher energy costs is likely to prompt an “earlier policy response” from central banks than previously forecast, Fitch said. “Inflationary pressures have increased in both advanced economies and emerging markets, exacerbating the policy dilemma faced by many monetary policy authorities,” said Maria Malas - Mroueh, a director in Fitch`s sovereign team.
Fitch sees the U.S. economy, the world`s largest, growing 3 percent in 2011 and 2.8 percent in 2012, lower than the previously forecast rates of 3.2 percent and 3.3 percent. For Japan, Fitch cut its 2011 projection to 1 percent from 1.5 percent and raised its 2012 outlook to 2.2 percent from 1.7 percent, reflecting an increase in reconstruction spending after the March 11 earthquake.
The euro-area economy will expand 1.2 percent this year and 1.8 percent in 2012, according to Fitch, lower than the 1.6 percent and 2.1 percent rates it projected previously.
Fitch also cut its forecasts for Brazil, China and India, while the increase in oil prices led to a `small upward revision” to Russia`s forecast.
American investment bank Merrill Lynch sees global oil prices surging to $144 per barrel based on the Brent crude benchmark in the next three months given the political unrest in the Middle East and North Africa. “Global oil demand has been expanding at a breakneck pace in recent quarters, and now the political situation in Libya has reduced oil production by one million barrels per day,” Merrill Lynch said in a commentary dated March 7.
To reflect the tighter oil market, Merrill Lynch adjusted upward its average Brent crude forecast to $122 per barrel from its previous estimate of $86. The bank said prices could briefly break through $140 and hit $144 per barrel in the next three months.
For the average Brent crude price for 2011, Merrill Lynch said it would rise to $108 per barrel, up from its previous forecast of $88 per barrel. The bank expects WTI (West Texas Intermediate), also known as Texas light sweet oil, to average $101 per barrel this year, up from its earlier forecast of $87. The price of Brent crude is the benchmark for European economies while that of the WTI is used by the United States.
06.03.2011 17:10 World Economy Review - February 2011
Sharply rising oil prices could prove a drag on global economic recovery this year, the International Energy Agency (IEA) warned. With oil already topping the $100 per barrel mark as political instability in the Middle East adds to upwards pressure from rising commodity prices, the worldwide "oil burden" is set to hit 4.7 per cent of total economic output this year, up from 4.1 per cent in 2010.
"The combination of higher prices, emerging inflationary pressures and instability in the Middle East is not a healthy one," the IEA`s monthly oil report said. "Under current assumptions for global GDP, oil price and oil demand, the global oil burden could rise to 4.7 per cent in 2011, getting close to levels that have coincided in the past with a marked economic slowdown."
The IEA also increased its forecast of global demand for oil in 2011 to 89.3 million barrels per day, its fifth increase in as many months, as economic growth recovers, particularly in emerging economies such as China.
Separately, the Organization of Petroleum Exporting Countries in its Oil Market Report, February 2011, said the world economic growth in 2011 "remains unchanged at 3.9 per cent," noting that it had previously revised it up to 3.9 per cent in January from the 3.8 per cent initial projection.
Consequently, the report said the United States economy "is now expected to expand by 2.9 per cent and the Euro-zone raised to 1.4 per cent. Growth for developing countries remain almost unchanged, with China growing at 8.8 per cent and India at 8.5 per cent in 2011." However, the report said, "despite increased activity in the manufacturing sector, which has led to a broad-based improvement in global sentiment, significant challenges remain. "The extraordinary sovereign debt levels, rising inflation rates, combined with the possibility of overheating in developing countries, constitute concerns that might influence the 2011 growth trend.".
Meanwhile, the World Bank has published an optimistic forecast for the African continent. It is projecting output growth of 5.3% in 2011 and 5.7% in 2012 compared to 4.7% in 2010 and 1.7% in 2009. The recovery is a return to the buoyant growth rate which prevailed before the global financial crisis.
06.02.2011 13:27 World Economy Review - January 2011
The World Bank has again revised its 2010 growth estimate for the global GDP saying that it has expanded by 3.9 per cent in 2010, driven mainly by strong domestic demand in developing countries. The report contended that East Asia and Pacific region, with GDP growth estimated at 9.3 percent for 2010, led the global recovery. This was on the back of an estimated 10 per cent increase in Chinese GDP and a 35 per cent increase in its imports.
However, the bank in its Global Economic Prospects 2010, said the global growth is expected to be lower at 3.3 per cent in 2011, before picking up to 3.6 per cent in 2012. These predictions are based on easing of restructuring activities in developed countries. ``The world economy is entering into a new phase of recovery,`` Justin Yifu Lin, the World Bank`s chief economist and senior vice president of development economics, told reporters.
``On the upside, strong developing-country domestic demand growth is leading the world economy, yet persistent financial sector problems in some high-income countries are still a threat to growth and require urgent policy actions,`` said Lin.
The developed countries would be showing a recovery of 2.8 per cent in 2010 after a negative growth of 3.4 per cent in 2009. However, growth will be subdued at 2.4 per cent in 2011 with marginally higher growth of 2.7 per cent in 2012.
The Chinese GDP growth rate will slow to 8.7 percent this year from 10 percent in 2010, and a key challenge in 2011 will be to ensure that anti-inflationary measures do not "significantly" reduce growth, the World Bank said.
Amid credit-tightening measures to combat inflation and surging property prices, China`s growth is expected to ease to 8.4 percent in 2012, the bank said.
Despite the slowdown, China will spearhead Asia`s economic expansion. According to the bank`s forecast, the overall growth rate for developing Asian economies will ease to 8 percent from last year`s 9.3 percent as governments rein in credit to cool inflationary pressures.
The economic recovery in developing Europe and Central Asian countries will slow this year, weighed down by high unemployment and flagging exports, the World Bank said in a report published. Economic growth in the regions will slow to 4% in 2011 from 4.7% in 2010, the organization`s Global Economic Prospects report said. The World Bank said growth for developing Europe and Central Asia will firm to 4.2% in 2012.
07.01.2011 18:51 World Economy Review - December 2010
Fitch Ratings says in its latest quarterly Global Economic Outlook (GEO) that despite significant financial market volatility, the global economic recovery is proceeding in line with its expectations, largely due to accommodative policy support in developed markets and continued emerging-market dynamism.
Fitch has marginally revised up its projections for world growth to 3.4% for 2010 (from 3.2%), 3.0% for 2011 (from 2.9%), and 3.3% for 2012 (from 3.0%) compared to the October edition of the GEO.
Accommodative policy measures extended by the US government have provided a boost to Fitch`s US growth outlook - these include the proposed extension of a number of tax measures, and the introduction of a second round of quantitative easing. Incoming data has also turned more positive (including strong GDP quarterly growth in Q310), reflecting strength in private consumption and corporate profitability. Consequently, Fitch has raised its US growth forecasts by 0.6% in both 2011 and 2012 to 3.2% and 3.3% respectively. Unemployment is now also expected by Fitch to moderate to 9.1% in 2011 and 8.7% in 2012. Despite the improved outlook, the agency`s view remains that the recovery will continue to be mild by historical standards in light of still weak labour and housing markets.
Persistently weak domestic demand continues to weigh on growth prospects in Japan in the medium term. Fitch has made only marginal revisions to its Japan forecasts, revising up expected 2010 GDP growth to 3.2% from 3% after Q310 growth came in at 1.1% against the agency`s expectation of 0.6%, while revising 2011 growth down to 1.5% from 1.6%.
Fitch has also marginally revised down its medium term forecast growth in the UK from 2.3% to 2.0% in 2011 and 2.6% to 2.4% in 2012, reflecting still weak consumer and business confidence in the context of heightened volatility in Europe and plans for fiscal consolidation at home.
In the euro area, the agency has stated that although economic challenges facing the peripheral economies are significant, the severity of the market turmoil is not warranted by underlying fundamentals. Still, heightened volatility has eroded the growth outlook for a number of countries, resulting in a downward revision of some of Fitch`s growth forecasts in the area.
Conversely, the agency has revised up its outlook for Germany due to its view that secular growth is now emerging along with the expected cyclical rebound following the contraction in 2009. Overall, Fitch has marginally reduced its growth forecasts for the euro area to 1.7% in 2010 and 1.5% for 2011. For 2012, the agency has increased its growth outlook to 2.1%.
Emerging markets continue to outperform expectations and Fitch has raised its 2010 forecasts for China, Brazil, and India due to still buoyant economic growth. However, the agency has revised down its Russian forecast as the pace of recovery proved weak, partly as a result of the severe drought and heatwave in the summer. Fitch forecasts growth of 8.4% for these four countries (the BRICs) in 2010, and 7.4% for each of 2011 and 2012.
The December 2010 GEO outlines Fitch Rating`s baseline quarterly macroeconomic projections, with a special focus on the MAEs.
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