I said this was going to happen last year. Before I got married and thus had to limit by news reading time and blogging time, I was closely following global financial news and the pattern I saw was more trade agreements in Third World countries with other Third World countries and not the United States. Now everybody has been predicting that China and India would eventually be the leading economic forces in the world due to their both being huge markets with cheap labor. Both of these countries are along with the reemerging Russia are pulling all of Asia, including Japan, with them.
The surprise here is Europe. When talk of the global economy comes up Europe is usually described as DOA. However, the more I read about alternative energy production, invention and legislation, the more I see Europe, especially Germany being cited as leaders in that field. You can bet that that Europe will stay close to the Third World and continue to placate Fascistic regimes in order to expand the ware of alt energy goods in places that will be engulfed in an ecological crisis of Biblical proportions (Russia and China I'm looking in your direction).
The United States is no longer the worlds factory nor are we isolated away from an exploding Europe as we were at the dawn of the 20th Century. Things are different today and if our history of being threatened by competition (i.e. Robber Barons and monopolies) continues to guide our policies, domestic and foriegn alike, I can only imagine what kind of damage we'll ultimately end up inflicting on the world if not ourselves.
The other option, the one where we're increasingly disarmed and as ineffective in the world as the United Nations, is that we continue to economically atrophy and adjust to being much like a lesser European country. Sweden is a good model. We'll just get by and stay out of world affairs. Of course that would require us to stop buying foriegn oil from Saudi Arabia thus having a military prescence in the Middle East, but that is a whole other story altogether. In the meantime, as the article below states, get ready for another recession.
As 2007 arrives, the US economy sneezes. But thanks to ultra-rapid growth in the world’s most populous countries and a helping hand from western Europe, the world proves immune from a cold.
That’s the plot scripted by most economists for next year. In the "new world", China and India are on a roll. The crises that swept across Asia in the 1990s are fading memories.
In the "old world", Japan is back, surfing the Chinese wave after a downturn that lasted most of the 1990s. Europe is back too, led by a leaner, meaner Germany.
"In many ways 2007 is likely to be a year of transition as the United States passes the baton to the rest of the world," the economists of US investment bank Merrill Lynch say.
They are decidedly upbeat about prospects for more, strong global growth next year despite the downturn unfolding in the US housing markets after a 10-year boom.
"We still expect the global economy to weather the US storm," Merrill’s team wrote in a report on the global outlook.
Not quite everyone agrees. Nouriel Roubini, economics consultant and professor at New York University, says a US recession is already hitting, the world will indeed catch a cold, and euphoria in stock markets is proof of poor judgment, not a guide to reality.
The markets are deluded by fairly tales, Roubini, who has been predicting recession for some time, said in a blog.
The International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) side more with the optimists, however.
The IMF predicts 4,9% global growth next year after 5,1% this year and a modest deceleration in following years to an annual average of 4,8%, compared with 5% in the 2004-2007 period.
Driving the impressive global figures are emerging market economies, which have collectively been growing twice as fast as the industrialised ones or more in recent years.
Those forecasts were made in September but the IMF has stuck to them. And the OECD produced the same basic storyline in a report last week.
As investment banks dream up ideas for making money next year, they seem to see no end to a boom that has relegated the dot-com crash of 2000 to the history books along with the economic fallout from the attacks of September 11 2001.
Dutch bank Fortis says things have not been better since the Swinging Sixties. Growth in the 1950s and 60s averaged close to 5% a year. "Predicting that it will last for the next couple of years would almost seem too good to be true. Yet, that’s exactly what we see happening," their economics team said in a report.
Communist-ruled China was shut to outsiders back then but is now the world’s fourth largest economy and expected to keep growing at not far off the annual 10% it has achieved since Deng Xiaoping threw the doors open in 1978.
India is not far behind. Neither is Russia, and in many other emerging economies growth is surging because of cheap labour and new markets opened by declining transport and communications costs globally.
Keith Skeoch, CE of Standard Life Investments, says nobody would have believed after the stock market crash of 2000 that investors would pile back into shares so fast and with good reward. More is to come, he says.
World share markets produced a return of 17,5% in the 11 months to the end of November alone, he says, way more than the profit on bonds or cash investments.
OECD chief economist Jean-Philippe Cotis says next year should be a year of "rebalancing" in a world that relied for too long on US consumers to do the buying that kept the rest in business.
The economic order in place since World War Two gives way to more widely distributed roles of economic production. Next year, the shift may become more perceptible as the US machine slows, with Asia and Europe picking up the slack, he says.
Fortis’s economists highlight that emerging market economies accounted for short of 50% of annual world growth five or 10 years ago but the figure is now 70% - in large part because of a surge in China’s presence followed the country’s entry into the World Trade Organisation some five years ago.
For Europe, contributing to total world growth is more of a novelty. Germany’s resurgence from a decade as the "sick man" of Europe’s wealthy "old" western side is the designated driver.
Economists put Germany’s comeback down to years of effort to cut the cost of labour, years of erosion which sapped confidence and snuffed out domestic consumption but which may pay dividends now in a world of more globalised competition.
"Germany has regained a predominant position in the European economy, one it was really lacking for the about last 10 years," says Klaus Baader, Europe economist at US bank Merrill Lynch.
"German competitiveness has been restored dramatically...and the labour market appears at long last to have turned a corner in a serious way," he says.
Growth in the eurozone is predicted to slow next year after a rebound this year to growth of about 2,5%, from 1,3% in the preceding year and several years of relatively lacklustre performances. But economists believe the bottom line is one of a lasting recovery, a broad upturn in investment and now in consumption.
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