Shift in global fortunes as traditional growth poles shrink
Published:Friday | January 28, 2011 | 12:00 AM
Dennis Morrison, Columnist
Like they did in 2010, emerging and developing economies, particularly in Asia, are this year expected to be the main drivers of global recovery. In its latest forecast, the International Monetary Fund (IMF) is projecting that while advanced economies could grow by 2.5 per cent in 2011, slower than the three per cent rate in 2010, emerging and developing economies are likely to expand by 6.5 per cent.
This is a big turnaround from the traditional three growth poles of the United States, Europe and Japan that dominated the world economy, and were the motors that pulled the international economy out of previous recessions.
According to data issued by the Fund, while the US - the world's major economy - will gain momentum this year, the Euro area, the largest economic bloc, will however continue to be a drag on the world economy. Importantly, the German economy, the strongest in Europe and the first to emerge from recession in that region, is projected to slow down significantly.
At the same time, the IMF anticipates that the economies of France and Italy, core members of the Euro area, will remain flat. Japan, the third-largest economy having been recently overtaken by China, is expected to perform even worse, with the Fund forecasting that it will grow by only 1.6 per cent in 2011 and 1.8 percent in 2012, after expanding by an estimated 4.3 per cent in 2010.
Among the emerging and developing economies, Asia stands out, having escaped recession with 7 per cent growth in 2009 at the height of the global crisis, and is estimated to have registered growth of 9.3 per cent last year.
The newly industrialised Asian economies also performed robustly, growing by 8.2 per cent last year, and are projected to continue growing at near 5 per cent in 2011.
China and India, the big players in this region, picked up speed last year returning to double-digit growth, and the IMF estimates that they could continue on this path with a slight easing in pace this year.
Russia, which suffered a steep decline of 7.9 per cent in GDP in 2009, and Brazil - the other BRIC countries - are also projected to see robust growth in 2011.
Uptick in growth
Another signal of the changing geography of the world economy is that Sub-Saharan Africa not only escaped the recession, but registered an uptick in growth from 2.8 per cent in 2009 to an estimated five per cent last year.
Moreover, the IMF is forecasting that this group of countries could enjoy further growth of 5.5 per cent in 2011 and 5.8 percent in 2012.
No doubt, they are the beneficiaries of the sharp recovery in commodity prices since the second half of 2009, spurred by the buoyancy in China and, to a lesser extent, other Asian economies.
Rising commodity prices have been a big factor in the performance of certain of the emerging and developing economies, among them Brazil, Russia, and leading oil producers.
The Middle East and North Africa, a major oil-producing region, saw acceleration in growth in 2010, which is expected to continue into 2011 and 2012 with oil prices slated to reach nearly US$100 per barrel later this year.
Mexico, a major oil producer which suffered a steep 6.1 per cent decline in its economy in 2009, also made up substantial ground in 2010 with its GDP increasing by 5.2 per cent, and the IMF estimates that it will sustain similar growth rates in 2011 and 2012.
The threat to global recovery remains most likely to come from problems in the European financial system, as was recently seen in Ireland where leading banks had to be bailed out by the government.
Spain and Portugal, which were also caught up in the financial bubble, are under close scrutiny by financial markets which have signalled their concern through rising interest rates in bond markets. The globalised nature of the world's financial markets exposes countries to higher risks of contagion and, therefore, the problems in Europe could undermine overall world economic recovery.