In the blaze of partisan squabbles and corruption scandals, it’s normal to lose sight of overseas events, even those that could disrupt the country and dislocate millions of Filipinos with greater impact than the vilest excesses of the corrupt. So we put the political commentary on pause and yield the space to this excerpt from the global economic update by the Center for Strategy, Enterprise & Intelligence, from The CenSEI Report issue out this week:
Risk. That is the four-letter word that dominated the 2013 Annual World Bank-International Monetary Fund Meetings in Washington over the weekend.
That the world economy is a riskier place one can surmise from IMF Managing Director Christine Lagarde’s remarks when she and World Bank President Jim Yong Kim opened their institutions’ three-day conference last Friday. In her statement, “The Future Global
Economy and the Future Fund,” the IMF chief underscored three long-term trends elevating risk: “a more multi-polar world,” “a world of increasing financial integration,” and the “new frontiers of risk” that nations face.
All three developments raise uncertainty. With more countries and regions impacting on the world, rather than just the West and Japan, sources of disruption are multiplying. Take the current global economy. Just when signs of recovery are flickering in the West and Japan, downturns in China, India and Brazil dim the optimism.
Compounding nerves is Lagarde’s second risk factor: expanding linkages in global finance rapidly spread money crisis in one market to distant financial centers. These ripples unsettle investors and institutions, skew prices and exchange rates, and otherwise shake up economies and monetary systems far from trouble spots.
That’s why all the planet is on tenterhooks, waiting for the United States to end its government shutdown and avoid a globally catastrophic debt default by raising its ceiling on state borrowings by Oct. 17. For starters, every central bank’s currency reserves—held mostly in U.S. Treasury bills—could take a mammoth hit if Washington misses IOU payments.
As if a globe of multiple trouble spots wired together by electronic cash weren’t enough to keep them awake, the World Bank and IMF CEOs have more adverse factors on their list. Lagarde’s “new frontiers of risk” include population imbalances, income disparities, and environmental sustainability.
And Kim’s Bank just published its World Development Report 2014, with the secondary title, Risk and Opportunity: Managing Risk for Development, covering disruptive, if not deadly threats from weather, disease, scarcity, conflict, and macroeconomic dislocation.
The global economy in recent years exemplifies well the incessant uncertainties it has to deal with. “Five years ago, the global economy avoided a second Great Depression,” recounts Lagarde in her October 4 speech at George Washington University in the U.S. capital. “Five years on … In many of the advanced economies, we are finally seeing signs of hope. Growth is looking up, financial stability is returning, and fiscal accounts are looking healthier.”
Now for the fine print. While things are looking up somewhat, especially in the West, economies are still performing below potential. In the United States, the Fund chief sighed, “growth this year will still be too low—below 2%—due to too much fiscal adjustment.” Like the current essentials-only regime due to congressional bickering.
And Europe? Next year it may scrape together 1% growth after 18 months of euro zone recession ended in the April-June quarter. But 12% unemployment, with half of young Europeans jobless, remains an excruciating burden.
On Japan and the growth-lifting “Abenomics” of Prime Minister Shinzo Abe, Lagarde allowed: “The government’s aggressive stimulus policy seems to be working—boosting GDP by about 1%. Deflation is coming to an end and a new found optimism is in the air.” But she cautioned that plans to arrest mammoth public debt by raising the sales tax should be carefully managed, as with other transitions in leading economies.
The Conference Board is a New York-based business issues and research organization funded by leading companies around the world and tapping business experts and executives. Its latest Global Economic Outlook 2013, updated last month from survey responses by the Board’s planet-wide membership, sees world output growing 2.9% this year, down from 3.0% last year.
It would have been worse if Europe had not slipped out of recession to manage 0.3% expansion, reversing -0.2% contraction in 2012, based on polled estimates of hundreds of executives and economists in key regions. The U.S. is one main drag, its gross domestic product tipped to decelerate to a 1.6% rise, a big drop from 2.2% last year. The other damper: GDP growth in developing economies is tipped to dip to 5% from 5.5%, amid slowdowns in China (7.5% from 7.8%) and India (4.2% from 5.5%).
In coming years till 2018, the world and major economies will continue to show mixed performance. By The Conference Board’s reckoning, global growth will hardly budge, creeping up from 2.9% projected this year, to 3.0% annual average forecast in 2013-18, based on the Board members poll. That base rate could add a full percentage point in an optimistic scenario, or slump to 2.2% if conditions go bad.
Advanced economies could accelerate from just over 1% this year and last, to a base annual average forecast of 1.8% from 2013 to 2018. Assuming political brinkmanship in Washington doesn’t precipitate a cataclysmic T-bill default, America could manage 2.3% expansion till 2018. Europe may quadruple its rate to 1.2%, while Japan nudges upward to 0.9% in 2013-18.
Those rich-world gains, however, would be offset by a slump in emerging and developing economies. Their collective growth could slow to a base average of 4.4% in 2013-18, down from 5.0% expected this year.
China would be top culprit, with its base forecast dipping to 5.8%, from this year’s 7.5% projection. The other downturn would be in Russia, Central Asia and Southeast Europe, which includes the Balkan Peninsula and Turkey (but not Greece). That region’s base-scenario growth in 2013-18 is tipped to drop to 2.1% from 2.9% forecast this year. In other emerging or developing economies, growth would be flat or slightly higher.
However, risks abound, and if they lead to bigger problems than expected, global growth could fall further. The developed world could see a pessimistic projection of 1.4%, just slightly higher than this year’s 1.2% Conference Board forecast.
The rest of the globe could fare even worse under the negative scenario: 3.0% annual average growth in 2013-18, down from the 5.0% base. The big declines under the pessimistic forecasts would be in China (3.7% in 2013-18 from 7.5% this year), Russia, Central Asia and Southeast Europe (1.2% from 2.9%), and developing Asia outside China and India (3.6% from 5.0% in 2013). And we’re all worked up about pork barrel.
(From The CenSEI Report global economic outlook. For the full study with charts, data, and executive and expert discussions, email email@example.com.)