The World Economy In 2013: The Calm Before The Storm?
After nearly four years of economic turmoil, the global economy in 2013, comparatively at least, appears to be now reaching a period of relative calm.
The U.S. has somehow managed to avoid the fiscal cliff at the start of the year, the tail risks of a Greek exit from the Eurozone or a massive loss of market access in Italy and Spain have been drastically reduced, China for better or worse will undergo an economic rebalancing, while even the so-called “harbingers of doom” – the banks that caused the financial crisis in the first place – have been either saved or somewhat reined in, with greater fiscal responsibility and regulations placed on these financial institutions.
The world economy, it seems, will be able to muddle through for the next year at least.
Now for the bad news.
As leaders worldwide continue to kick the proverbial can of problems down the road, more dirt is likely to be picked up along the way. Much of the fate of the global economy is now in the hands of politicians and central bankers – and we of course all know how much they can be trusted to swiftly deal with any economic problems, don’t we?
At EconomyWatch.com, we welcome the optimism and relief to the markets that the New Year has brought, but we remain wary of the risks ahead, especially as we now embark on an era of even more divisive politics and policies worldwide, which will not push the economy into turmoil in the short-term, but equally will not put us on the road to sustainable recovery.
But before we take a look at the issues, let’s take a look at the economic forecast for the year, taken as ever from our Economic Statistics Database.
World Economic Statistics at a Glance - 2013 Forecast
World GDP (current prices): $74.171 trillion
World GDP (PPP): $87.209 trillion
GDP Growth Rate: 3.152%
GDP Per Capita (PPP): $12,400
GDP By Sector: Services 63.9%, Industry 30.2%, Agriculture 5.9%
Growth In Trade Volume: 4.48%
Industrial Production Growth Rate: 3.9%
Population: 7.095 billion
Population Growth Rate: 1.096%
Urban Population: 50.5%
Urbanization Rate: 1.85% (125 million people move to cities every year)
The Poor (Income below $1.25 per day): Approx 1.49 billion (~ 21%)
Millionaires: Approx 11.0 million (~ 0.15%)
Labour Force: 3.305 billion
Inflation Rate – World Average: 4%
Inflation Rate - Developed Countries: 2.2%
Inflation Rate - Developing Countries: 5.3%
Unemployment Rate: 9.2%
Investment (gross fixed): 24.1% of GDP
Public Debt: 64% of GDP
Market Value of Publicly Traded Companies: $47.04 trillion, or 63.5% of World GDP
Sources: EconomyWatch.com Economic Statistics Database, CIA World Factbook, IMF, World Bank
The World Economy in 2012 was worth $83.140 trillion in GDP terms, using the Purchasing Price Parity (PPP) method of valuation. This is expected to grow to $87.209 trillion in 2013.
Ever since the international financial crisis of 2008-09 led to the first downturn in global output since 1946, economies around the world have adopted a mix of fiscal and monetary policies to restore growth and jobs, while keeping inflation and debt under control.
From monetary easing (conducted by central banks) to fiscal consolidation (a.k.a. austerity), governments have had to confront the difficult task of spurring current growth and employment without saddling their economies with so much debt that they sacrifice long-term growth and financial stability.
The IMF now sees the world going through a “three-speed recovery” process, as emerging markets continue to go strong, while a growing split appears to be developing between the policies and growth prospects among the advanced economies – most notably, the United States and the euro area.
Beyond the economic slowdown, the world also faces several long-standing economic challenges. Having reached the “magical” 7 billion mark in population in 2011, the world is facing an overcrowding issue - exacerbating the problems of pollution, waste-disposal, epidemics, water-shortages, famine, over-fishing of oceans, deforestation, desertification, and depletion of non-renewable resources.
Yet advances in technology have also begun to show signs of being able to deal with some these problems, with progress being achieved in agriculture, medicine, alternative energy, metallurgy, transportation and communications.
In order for you, our readers, to gain a greater appreciation of the issues, we at EconomyWatch.com have complied a *top-three list of articles and viewpoints published on our site (and broken down into categories) to keep you informed on the world’s global prospects.
Keep coming back on to page for regular updates or head to our Features Section for a broader perspective. Additionally, you can also read up on Country profiles or check out our Economic Statistics Database.
*List last compiled – May 2, 2013
Austerity – The Answer Or The New Problem For Europe?
While Europe’s leaders shy away from the word, the reality is that much of the European Union is in depression. Indeed, it will now take a decade or more to recover from the losses incurred by misguided austerity policies – a process that may eventually force Europe to let the euro die in order to save itself.
Until recently, Brussels has supported primarily frontload austerity measures. When President Hoover tried similar policies in 1930s America, a severe recession morphed into a devastating Great Depression. Is Europe following in the footprints?
The intellectual case for fiscal austerity came under fire when a study by academics at the University of Massachusetts found that economic growth is achievable even public debt is greater than 90 percent of GDP. The findings refute an influential 2010 pro-austerity study by Harvard economists Carmen Reinhart and Kenneth Rogoff, and renews the debate over deficit reduction policies being pursued in the eurozone and elsewhere.
The Central Banks Dilemma
The political paralysis over economic growth in several developed nations have effectively forced central banks to embark on a shift from their conventional monetary policies. But, the best that central banks can do for now is to buy time, while waiting for other policymaking entities to get their act together; and the new paradigm shift may present the greater risk of loss of credibility and political independence for institutions that are critical to well-managed economies.
Expansionary central bank policies have, in recent months, helped investors shrug off troubling political uncertainties in order to spark a recovery in global financial markets. Nonetheless, some have called the market rally “one of the most unloved” in history – as any fresh geopolitical shock or political breakdown could negate central bank efforts’; and send financial markets once more down a spiral.
Central banks on both sides of the Atlantic took extraordinary monetary-policy measures in September, sending stock markets soaring. But politicians – and markets – in both Europe and America are mistaken if they believe that monetary policy can restore economic growth and boost employment.
BRICS & The Emerging World
The significance of the decision by the BRICS to create a new development bank that they will fund cannot be overemphasized. Emerging markets and developing countries are taking the future into their own hands – at a time when rich countries are muddling through their own self-inflicted problems.
As a result of monetary expansion and fiscal stagnation in the advanced world, the BRICS countries are no longer immune to the debt crises that have plagued the developed economies. But contrary to what the critics may believe, the BRICS, as an alignment, are not headed towards demise.
With many of the world’s major emerging economies now moving towards a stagflation-lite situation, where inflation sticky at high levels but with growth decelerating or stagnant, can leaders find the correct policy response?
The last few years have highlighted the declining potency of long-standing growth models. Today, some of the biggest world economies struggle to create ample, well-paid and secure jobs amid a secular re-alignment of the global economy. This is a challenge that will not be met easily or quickly. And, when it is met, the process will most likely be partial and uneven, accentuating differences and posing tricky coordination issues at the national, regional, and global levels.
Following the 2008 financial crisis, it is almost inconceivable to think that America today represents the greatest hope for the global economy. Yet, with Europe struggling to restore growth, China facing a hard landing if critical structural reforms are postponed, and emerging markets turning more and more towards state capitalism, the U.S. is in the best relative shape among the world’s largest economies – even if this fact in itself presents risks.
As global leaders continue to deal with their economies’ immediate problems, long-term issues such as global warming, inequality and poverty are being compromised – with potentially dangerous ramifications. Although today’s crises undoubtedly warrant immediate action, we should be asking whether we are responding in ways that will exacerbate our long-term problems.
The World Economy In Context
While chances of a perfect economic storm in 2013 are low, the global economy still faces major risks this year – especially as fiscal austerity continues to spread to more advanced economies, leading to an increased risk of a hard landing in China and the threat of war in the Middle East. Any one of these risks alone will also be enough to stall the global economy and tip it into recession.
How politics and economics interact nationally and globally is one of the important questions for 2013 and beyond. There are three scenarios: good economics and effective politics provide the basis for a growing and more cooperative global economy; bad economics interact with dysfunctional politics to ruin the day; or the world muddles through, increasingly unstable, as a tug of war between economics and politics plays out, with no clear result or direction.
As the European Union mulls another year of economic stagnation and the United States a year of lacklustre and uncertain economic recovery, will emerging markets take the lead in global economic recovery?