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Telescopic view of world economy in 10 years…

December 27, 2010 Leave a comment Go to comments

As we head towards circa 2020… one big question on top of our minds is. Who will drive the world economy? Is it still going to be US or is someone going to displace it from the driver’s seat?

The potential candidates for the top slot are the US, the BRIC nations (Brazil, Russia, India, China), and maybe Japan, Germany.

US will definitely see shrinkage of its economic and political influence to end 19th century levels i.e. in Caribbean and Mexico. A curtain raiser to this point was at the recent climate change talks and the G20 summit. However, since the global economy is closely aligned to US economy, the growth rates we see will be very low.

Talking of alignment, we have also seen emerging markets (esp. in latin america) shedding their dependence on US for economic direction… to become independent in terms of framing their policies by setting new frameworks for trade and political consultations. Any try to deepen US engagement in this region on non-economic fronts will be a failure. That being said, by virtue of being a pioneer in macro-economic perspectives, US can continue its reasonable influence by focusing on primary issues such as trade and economic integration.

Meanwhile, Africa is an underrepresented huge opportunity. They are sorting out political differences and civil wars. We are likely to see authoritarian regimes but stable governments like Latin America in late 19th century.

Going eastward, it is India… Even Obama admitted during his recent trip that “India has emerged”. But that is just a masked reality. US sees India as a balancing power… and hence this whole PR exercise. If you look at India with a zoomed lens… it is still a poor country by per capita and GDP ranking. This hype is just for the simple reason that India is rapidly growing economy with growth prospects. India has grown in the last 7 years at around 8-9% including during the crisis. In dollar terms, it is 12%. Projecting that, India is right now at just over $1 trillion and in 10 years with a 10% growth, could touch $5 trillion giving it third place. If that happens, then the central gravity of global economy is definitely tilted towards Asia with India, China, and Japan. One other advantage for India is its demographic transition. China and developed countries will be down by 100 million in work force while india will see a boost by 100 million. Plus certain other advantages for India are:
– High savings rate (~35% of GDP)
– Open and competitive economy
– Rising working age population
– Substantial entrepreneurial class
However, what India needs to remain on the growth trajectory is reforms to accelerate growth, and address issues of higher education, land reforms, and infrastructure.

Now who can miss China from all this talk about global economy and growth. Chinese average growth rate is expected to be 6% with a possibility of another 20-30 years of growth. From economic logic, primary source of growth for developing countries is labor cost differentiation while for high income countries it is innovation. And this could be a problem for China… with it moving into high income group, its growth rate should come down. Another factor that I never thought of but came by when I was listening to a professor from Columbia University is the sex-ratio imbalance. There is an increasing relative surplus of men in China… This has prompted them to save more, work harder, and be more entrepreneurial just to be more eligible for marriage.

To round off this discussion, we need to also look at the high income countries… what we see is Australia and Canada having the fastest growth in this bracket primarily due to their connection with emerging countries as natural resource commodity exporters.

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  1. May 7, 2011 at 9:27 pm
  2. May 7, 2011 at 9:29 pm

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