By John Kemp
LONDON Dec 5 Financial journalists and
commentators across North America and Western Europe are still
struggling to come to terms with the shifting centre of gravity
in the world economy.
Too many articles and papers are trapped in a narrow
parochialism that sees advanced economies as the "core" of the
world economy and relegates emerging markets to a relatively
less important "periphery".
As a result, far too many assessments of the global outlook
start from the premise that the economy is doing terribly. In
fact the economy is growing close to its long-term average rate.
There is no sign of a significant output and employment gap at
the global level. Markets for oil and other commodities such as
copper and iron ore are close to balance and do not show
significant excess capacity.
The problem is not overall growth but its distribution
between the advanced economies and emerging economies. The
result is a severe imbalance between strong growth and inflation
in emerging markets and certain commodity-producing countries
compared with stagnation, unemployment and rising prices in many
of the so-called advanced economies.
Because most senior policymakers, international institutions
and media organisations are based in advanced economies, their
assessments tend to be coloured by local concerns in those
areas. In too many instances, economists, journalists and
policymakers extrapolate from their local experience and assume
the rest of the world must be experiencing the same conditions.
Nothing could be further from the truth.
GROWTH, BUT NOT EVENLY SHARED
The world economy is on track to grow almost 4 percent in
2011, according to the International Monetary Fund (IMF) in the
latest edition of its World Economic Outlook (WEO September
2011). Output will rise slightly faster than the average for the
last three decades (3.33 percent). The difference is well within
the normal variability for global growth as measured by the
standard deviation (1.34 percentage points).
There is no crisis at global level. After a deep and
synchronised downturn in 2008-2009, the world economy has
bounced back remarkably quickly. Unfortunately, growth is not
evenly shared. The rebound has revealed some painful structural
shifts in activity.
Advanced economies are set to grow just 1.6 percent in 2011
and 1.9 percent in 2012, according to the WEO, well below the
average of 2.5 percent since 1980. The G7 economies are set to
fare worse, with output rising just 1.3 percent this year and
1.7 percent in 2012, compared with a 30-year average of 2.3
In contrast, emerging economies are expected to grow 6.4
percent in 2011 and 6.1 percent in 2012, well above trend and
almost one and a half times faster than the average since 1980
(4.5 percent) ().
It is misleading to generalise from conditions in one
country or group of countries to the experience of the global
economy as a whole. Britain, the United States and parts of
Europe may be facing the prospect of a "lost decade" following
the banking, real estate and sovereign debt crisis, but the rest
of the global economy is doing just fine. Past experience
suggests it may be able to weather the storm without too much
Regional imbalances are nothing new. Japan's lost decade and
Germany's post-reunification restructuring in the 1990s and
early 2000s was actually a period of very strong growth and low
inflation in the United States and the United Kingdom.
Global growth is much steadier than growth in any one
country or group of countries. For the world economy as a whole,
output has grown since 1980 by roughly 3.35 percent per year,
with a standard deviation of 1.32 percentage points.
Output growth has shown much more variability in individual
countries such as France (1.38 percentage points), Australia
(1.64 points), Italy (1.78) and the United States (2.1), let
alone China (2.72), Brazil (3.35) and Argentina (5.94)