Jamaica and the world economy

by John Rapley

In recent weeks, I've written several columns about the latest wave of the financial crisis, which is the sovereign-debt crisis in Europe. After weeks of panic and drama, two fallen governments, sweeping measures and behind-the-scenes prodding by the United States, the situation for the moment seems to have been stabilised.

It's been one storm after another, and like any storm, most of us can only hunker down until it blows past. Then we re-emerge into the light of day to assess the damage. And the landscape we're seeing out there is pretty bleak. If anyone in Jamaica is still hoping we can find our way on to a solid growth path by simply riding the tide of a rising world economy, it's time to pack in that dream.

Europe has announced that it will barely grow this year. Britain reckons it will take several years before it can repair the damage of the great recession. The US is showing comparatively more signs of life. But to say that the patient has opened its eyes is a far cry from saying he has leapt from his bed and is doing cartwheels.

New kids on the block

Before the onset of the great recession, some dreamers had made a little cottage industry of talking about 'decoupling'. The basic idea was that the rise of China and the other BRICS (Brazil, Russia, India, China and, latterly, South Africa) was creating new poles in the world economy. Regardless of what happened in the old poles of Europe and North America, they would continue growing, and would keep the world economy from sinking into a slump.

Well, don't hold your breath. Brazil last week announced that its economy has ground to a halt. Russia's economy has slowed sharply enough that in last week's parliamentary elections, voters delivered a sharp rebuke to the government. Why anyone thought that Russia, whose growth was driven by commodity prices, was ever going to keep booming once commodity prices fell back to earth, is a bit of a mystery to me. Commodity prices haven't collapsed, and Russia will keep growing. But if you're a football fan hoping that your faltering club might be rescued by yet another oligarch from Moscow, good luck.

So that leaves Asia. Yes, Asia. You'll save us, won't you, Asia? The economies of China and India are still growing healthily, and have a lot of productive potential. However, what the decoupling hypothesis neatly glossed over was that China's boom, in particular, was built on a foundation of exports to the West. With the West having slowed so sharply, China's own growth has begun to slow.

At current rates of expansion, Asia should be able to keep the world economy afloat. Diversifying exports to new markets would be an option for countries seeking to export their way back to growth. But that's not the whole story. There's more going on behind the scenes in China. As I wrote back in November, China's growth has also been driven, in part, by a speculative real-estate boom.

Some economists, like the familiar 'superbear' Nouriel Roubini, have predicted that the Chinese bubble will burst. Should that happen anytime soon, all bets will then be off. The best hope is that such a crisis will not surface for a couple of years, by which time the West might be crawling back off its deathbed.

Whither jamaica

So it doesn't look too promising for Jamaica, does it? If I'm just making you sink miserably into your morning coffee with this column, there is a happy ending. At least, there might be.

It's that Jamaica, for better or worse - and mostly, so far it's been for worse - marches to its own drum. I always marvel at how uncorrelated with foreign markets Jamaica's stock exchange is. The US experienced its biggest boom in history in the 1990s, and what did we do? That is not because we are doomed to failure. It's because, as a small economy, we can easily slip outside global currents.

In the 1970s, when we sank with the world economy, another small island, Mauritius, boomed. We have to do much the same sort of thing, and we can. I'll write more about that next week.

John Rapley is a research associate at the International Growth Centre, London School of Economics and Political Science. Email feedback to columns@gleanerjm.com and rapley.john@gmail.com.