June 8th, 2017 12:23 Source: FTChinese
After a long period of uneven and fragile growth, the global economic recovery is finally beginning to look stable, and even strong.
The eurozone, having apparently shrugged off the after-effects of the sovereign debt crisis, is now into a solid recovery. The US, notwithstanding some recent weakness in gross domestic product growth, is robust enough that the Federal Reserve is planning to raise interest rates next week. Although China still has big problems with debt, its economy is chugging along fine for now. And after their worst performance in 2016 since the global financial crisis, the emerging markets as a whole are recovering.
But behind this happy news lie some concerns, particularly with the emerging markets. Their long-term prospects have been hampered by a lack of investment and poor productivity growth that echoes the problems of their developed-world counterparts. They should use the opportunity of the current benign conditions to remedy those problems as soon as possible.
Over the past year, forecasters have become increasingly optimistic. The World Bank projected this week that world growth would rise to 2.7 per cent this year and 2.9 per cent in 2018-19. Emerging market economies are forecast to expand by 4.1 per cent this year and 4.6 per cent in 2018-2019.
But as the OECD, the Paris-based club of mostly rich nations, puts it in its latest report, the global recovery is “better, but not good enough”.
Some big emerging markets are suffering particular problems, such as Mexico, which faces uncertainty about trade policy in the US, or Turkey from domestic political turmoil. More concerning is a widespread lack of investment, which the OECD identifies as the missing support for trade, productivity and real wages, and which is storing up problems for potential growth rates in the future.
The World Bank identifies a lack of public finance, or publicly supported private finance, as a major reason. Although it is true that emerging markets face less supportive private external financing conditions than previously, there is a degree of special pleading in the analysis from the bank, given that it is trying to win a capital increase from its shareholders.
Even without an improvement in financing, emerging markets can improve their investment prospects by promoting competition and reducing debt burdens by judicious fiscal consolidation and, if necessary, restructuring financial sectors. Too few have taken advantage of previous growth episodes to improve regulatory environments. Too many still subject their economies to political uncertainty.
The world economy is growing steadily. Yet both its resilience to a major shock such as a financial crash in China and its prospects for future trend growth rates need addressing.