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Financial Mirror (Cyprus) - - FRONT PAGE -

The con­ven­tional wis­dom about the state of the world econ­omy goes some­thing like this: Since the start of the 2007-2008 fi­nan­cial cri­sis, the de­vel­oped world has strug­gled to re­cover, with only the United States able to ad­just. Emerg­ing coun­tries have fared bet­ter, but they, too, have started to floun­der lately. In a bleak eco­nomic cli­mate, the ar­gu­ment goes, the only win­ners have been the wealthy, re­sult­ing in sky­rock­et­ing in­equal­ity.

That sce­nario sounds en­tirely right – un­til, on closer ex­am­i­na­tion, it turns out to be com­pletely wrong.

Start with eco­nomic growth. Ac­cord­ing to the In­ter­na­tional Mon­e­tary Fund, dur­ing the first decade of this cen­tury, an­nual global growth av­er­aged 3.7%, com­pared to 3.3% in the 1980s and 1990s. In the last four years, growth has av­er­aged 3.4%. This is far lower than what many had hoped; in 2010, I pre­dicted that in the com­ing decade, the world could grow at a 4.1% an­nual rate. But 3.4% is hardly dis­as­trous by his­tor­i­cal stan­dards.

To be sure, all of the large, de­vel­oped economies are grow­ing more slowly than they did when their eco­nomic en­gines were roar­ing. But it is only the eu­ro­zone that has badly dis­ap­pointed in re­cent years. I had as­sumed, when I made my pro­jec­tions in 2010, that the re­gion’s poor de­mo­graph­ics and weak pro­duc­tiv­ity would pre­vent it from grow­ing at more than 1.5% a year. In­stead, it has man­aged only a mea­ger 0.3%.

For Ja­pan, the US, and the United King­dom, the prospects are brighter. It should be rel­a­tively straight­for­ward for them to grow at an av­er­age rate that out­paces that of the last decade – a pe­riod that in­cludes the peak of the fi­nan­cial cri­sis. In ad­di­tion, the dra­matic drop in the price of crude oil will serve as the equiv­a­lent of a large tax cut for con­sumers. In­deed, I am rather baf­fled by the IMF’s de­ci­sion to down­grade its growth fore­cast for much of the world. If any­thing, with oil prices fall­ing, an up­ward re­vi­sion seems war­ranted.

An­other fac­tor sup­port­ing a more pos­i­tive out­look is the re­bal­anc­ing that has oc­curred be­tween the US and China, the world’s two largest economies. Each en­tered the fi­nan­cial cri­sis with huge cur­rent-ac­count im­bal­ances. The US was run­ning a deficit of more than 6.5% of its GDP, and China had a sur­plus of close to 10% of its GDP. To­day, the US deficit has fallen to about 2%, and the Chi­nese sur­plus is less than 3%. Given that their in­ter­twined im­bal­ances were key driv­ers of the fi­nan­cial cri­sis, this is a wel­come devel­op­ment.

It has re­cently be­come fash­ion­able to dis­par­age the eco­nomic per­for­mance of the large emerg­ing coun­tries, par­tic­u­larly China and the other BRIC economies (Brazil, Rus­sia, and In­dia). But it is hardly a sur­prise that th­ese coun­tries are no longer grow­ing as fast as they once did. In 2010, I pre­dicted that China’s an­nual growth would slow to 7.5%. It has since av­er­aged 8%. In­dia’s per­for­mance has been more dis­cour­ag­ing, though growth has picked up since early 2014.

The only real dis­ap­point­ments are Brazil and Rus­sia, both of which have strug­gled (again, not sur­pris­ingly) with much lower com­mod­ity prices. Their lethar­gic per­for­mance, to­gether with the eu­ro­zone’s, is the main rea­son why the world econ­omy has not man­aged the 4.1% growth that op­ti­mists like me thought was fea­si­ble.

The con­ven­tional wis­dom on wealth and in­equal­ity is sim­i­larly mis­taken. From 2000 to 2014, global GDP more than dou­bled, from $31.8 trln to over $75 trln. Over the same pe­riod, China’s nom­i­nal GDP soared from $1.2 trln to more than $10 trln – grow­ing at more than four times the global rate.

In 2000, the BRIC economies’ com­bined size was about a quar­ter of US GDP. To­day, they have nearly caught up, with a com­bined GDP of more than $16 trln, just short of Amer­ica’s $17.4 trln. In­deed, since 2000, the BRICs have been re­spon­si­ble for nearly a third of the rise in nom­i­nal global GDP. And other emerg­ing coun­tries have per­formed sim­i­larly well. Nige­ria’s econ­omy has grown 11-fold since 2000, and In­done­sia’s has more than quin­tu­pled. Since 2008, th­ese two de­vel­op­ing gi­ants have con­trib­uted more to global GDP growth than the EU has.

Statis­tics like th­ese ut­terly dis­prove the idea that global in­equal­ity is grow­ing. Gaps in in­come and wealth may be shoot­ing up within in­di­vid­ual coun­tries, but per capita in­come in de­vel­op­ing coun­tries is ris­ing much faster than in the ad­vanced economies. In­deed, that is why one of the key tar­gets of the United Na­tions Mil­len­nium Devel­op­ment Goals – to halve the num­ber of peo­ple living in ab­so­lute poverty – was achieved five years ahead of the dead­line.

None of this is meant to deny that we are living in chal­leng­ing and un­cer­tain times. But one thing is clear: eco­nom­i­cally, at least, the world is con­tin­u­ing to be­come a bet­ter place.

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