FEATURE | World Economic Survey
America, Eastern Europe and Russia. Deficits and fiscal consolidation are other speed bumps, interest rates are predicted to rise and many national economies still depend on some form of life support. “The challenges are that until now, in many countries, there are still many stimulus measures in place that were installed last year. These measures are still helping the (global) economy and cannot be dismantled overnight,” explains Nerb. “There are some signs that a self- sustaining upswing is beginning but this is not yet guaranteed, and we are urging governments to be very cautious with their exit strategy, and advising them not to start removing monetary and fiscal stimuli before next year – at least in countries which are in a position to maintain such stimuli.”
HUGE GROWTH
One of the most striking findings in the latest report is its prediction of economic success in Asia. With conditions deemed “highly favourable” there, China, Hong Kong, Vietnam and India are all in for huge growth, while the outlook for the Philippines, South Korea and Malaysia is also looking good. “We think that in China, for instance, growth of about 8 per cent can be sustained over the coming years; this year they will come close to 10 per cent again. India is also coming close to 8 per cent, as are the others, though they have quite a bit of catching up to do.” Any talk of China “driving” economic
recovery, though, is premature: the situation is still too unstable, and the Asian and western economies remain greatly isolated from each other. “As we saw in Europe after the war, with early recovery you often get high numbers. At the moment it’s mainly an internal Asian trend: the spill-over to the rest of the world is quite limited, but nevertheless they are there, and exports to Asia from Europe have increased.” The rise of Asia, and particularly China, as an
economic powerhouse is a regular theme in the media, whether expressed through the lens of the 2008s Beijing Olympic Games or George Lee’s documentary series on the country. The question of whether China is a potential partner or a potential threat remains unresolved: indeed, minor tariff scuffles are taking place, with Europe recently imposing duties on Chinese shoes, which has resulted in general bad feeling. Last year saw the People’s Republic overtake Germany as the world’s largest exporter,
22 InBusiness May 10
Dr Gernot Nerb, a Director of IFO and Head of Industry Branch Research.
“We THInK THAT In
THe Long-TerM, ASIA
WILL offer More
oPPorTUnITIeS
THAn rISKS.” - dr gerMoT nerd
growing to a 10 per cent market share and helped in part by a currency that is considered to be undervalued. It is the world’s third largest economy, and has Japan firmly in its sights. Huge stimulus packages of up to 9 per cent of GDP also played their part, an injection far bigger than in most countries. In a broader sense, UK insurer Prudential’s $35.5bn takeover of AIG’s Asian arm suggests that western companies see the continent as an area ripe for expansion. “We think that in the long-term, Asia will offer more opportunities than risks,” says Nerb. “If the general population moves into a higher bracket of income, European opportunities to export into the region will improve.”
CAUTIOUS OPTIMISM
Meanwhile, the picture presented of western Europe is one of more modest and gradual recovery, with a note of cautious optimism. To Nerb and his colleagues, the reaction to the international crisis was sound. “In general, we
think that the response (to the global downturn) was okay – it was without big delay, which was the first positive thing. The magnitude at the beginning was perhaps not large enough but in most cases, the programmes have been enlarged. In the US, it’s certainly above 5 per cent of GDP, while in Germany, the fiscal policy was correct and few mistakes were made with monetary policy.” US Federal Reserve Chairman Ben Bernanke comes in for particular praise. Having succeeded Alan Greenspan in 2006, he continued to serve under Barack Obama and was awarded the Time Magazine ‘Man of the Year’ accolade in ‘cometh the hour, cometh the man’ fashion. “He had studied the depression in the ‘30s and recession in Japan. From what he learned, he took some innovative measures, which other countries later followed. Monetary and fiscal policy did a good job, and we just hope that they don’t switch too radically too soon from stimulation to fiscal consolidation. That’s necessary in the long-term, of course, but it’s a process that should not start before next year because we’ve seen in the past that if you start too early, the self-sustaining upswing is not strong enough.” For the record, the US economy is described as “recovering, but sluggishly.”
UPGRADE IN EXPECTATIONS
As for Ireland, expectations have been upgraded. “There’s no question that the imbalances have been quite big, but I think Ireland definitely took powerful measures at an early stage. It is probably best described as a ‘strong medicine’.” The country languishes with Spain and Portugal in the current assessment of Euro zone countries – deflation, for example, is set to continue – but the picture presented in this quarterly report is much improved. “We think that Ireland, at least from our
perspective, is on a good path and if the world economy is recovering then Ireland should be in a position to participate,” says Nerb. International recovery assists exports, and the Central Bank’s first quarterly bulletin of the year predicted that growth in the Irish export sector would lead an escape from recession in the second half of 2010 – with cost competitiveness a key prerequisite. For countries relying on world trade, then,
2011 is a year to look forward to. “Without too many mistakes, a self-sustaining upswing should become more evident,” says Nerb. Asia, it seems, is already well on its way.
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