Tuesday, October 31, 2006

The New Economic Engines

An answer to the question of economic pre-eminence?

In my last post dated Sep. 15th, (admittedly a long time ago - I have been traveling on business and on vacation over the past 3 weeks) , I pointed to data suggesting that the US has perhaps ceased to be the world's economic engine, and posed the question as to which nation can lay claim to that status.

It now appears* that the venerable Economist has been pondering along the same lines. It says in an article dated Oct. 19th, 2006:

According to conventional wisdom, American consumers have single-handedly kept the world economy chugging along, whereas cautious Europeans and Asians have preferred to save. Yet the importance of America's role in global growth is often exaggerated.....The real driver of the world economy has been Asia, which has accounted for over half of the world's growth since 2001. Even in current dollar terms, rather than PPP, Asia's 21% contribution to the increase in world GDP exceeded America's 19%.

It concludes that "a sharp slowdown in the American economy could be offset by the growing and largely unrecognised power of Asia's consumers", and goes on to crown China and India as The New Titans that are set to give the world economy its biggest boost in history.

So, it would appear that the Economist has answered the question I had posed - the nations that will have a pre-eminent influence on world economic affairs are China and India (or at least these are the strongest candidates).

This also appears to lay at rest any further basis for my lament in the last post , that these two countries did not so much as find a mention as candidates for economic supremacy in earlier analyses of the same question.

But not so fast.

Before we crown China and India as the logical supremos of the coming economic era, we mustn't forget that each of these countries is beset by myriad problems (largely internal and of their own making), that may hobble their ability to achieve this grand status on the world economic stage. In addition, it would be foolish to ignore the strength that an enlarged and revitalised EU can easily muster over the coming years. And leave us not forget Japan, which has demonstrated stunning competitiveness, and an ability to take the rest of the world by the scruff of its collective neck too many times to be written off as a weakling or an also-ran in the coming economic order.

But most of all, we mustn't forget the enormous financial clout that America continues to wield, simply by virtue of its stranglehold on world financial markets. The Economist says it all:

When America sneezes, the rest of the world's economies may no longer catch a cold; but if Wall Street shivers, global tremors will still be widely felt.

And mighty tremors those may well be. We will continue to live in interesting times.
*By sheer coincidence of course..I am far too modest to suggest that this line of thought could have been provoked by my piece!