The state of the global economy has been well-documented over the past few years: One could argue that it’s a more volatile and variable world we live in now, both financially and politically.
There have been some bright lights amongst the gloom though, and they have tended to radiate from the so called BRICS countries (Brazil, Russia, India, China and South Africa). However, the global financial crisis which has centered on Western economies is starting to dim those bright lights a bit.
To give us a clear view of what is happening, and likely to happen to the world’s economy, SAS recently hosted a panel featuring Gerard Lyons, PhD, Chief Economist and Group Head of Global Research at Standard Chartered and Economist, best-selling author, Dambisa Moyo and moderator, René Carayol.
Which country faces the toughest road to recovery?
Rene first asked the audience a question on which they could vote – ‘Which one of the following economic regions do you believe faces the toughest challenges today?’ Europe “won” with an audience vote of 66 percent.
Gerard and Dambisa agreed with the audience that Europe faces the toughest road back, although Dambisa said the United States cannot be split from the fortunes of Europe. “Even the emerging world is not totally insulated from the fortunes of the Europe and the US,” said Dambisa, but she was much more positive about the future of Africa saying that it has “enormous unexploited potential.”
The ‘innocent’ have suffered with the ‘guilty’
According to Gerard, to understand where we are now, we need to understand what happened in the recent past. “The 'innocent' economies suffered with the guilty,” he said, “but the emerging economies have much more inherent resilience and are likely to continue to recover faster and stronger than those mature economies where the fundamentals are not as strong,” said Gerard.
His proof point: The net global economic growth is strongly positive, but the West is struggling.
Will the EURO collapse?
When asked if he thought the EURO would collapse, Gerard answered that the Euro is fundamentally flawed: “The EURO project was a political project when it should have been an economic one; the weaknesses that were there when the EURO was created are still there.”
Dambisa was even more bearish in her outlook - in short neither economist were hopeful for the EURO’s future.
According to Gerard, debt is not the problem - lack of growth is the problem and it cannot be 'inflated away'. Growth has to come from demand-led trade.
The China question
Gerard says that the markets fear a hard landing for China, but he thinks China is ready to take the next step from a middle income country to a high income country. “The economic trend for China will be generally positive, but still very volatile,” he said. “China is determined to lift more of its populace out of poverty, as well as rebalance their economy to encourage more domestic consumption.”
Gerard also pointed out how China is buying up intellectual property to support its growth. “In the future, we’ll see less 'made in China' and more 'owned by China,'” he concluded.
Which region of the world should you invest in?
Both economists think that Africa is the most attractive region for investment, saying that Africa is going to deliver high growth in the medium-long term.
China is already heavily investing in Africa, and the West is 'missing a trick' by getting to the party late. There is so much potential in Africa to service the demand of the emerging economies. “It will be Africa that will selling commodities and labor to these economies, not the west,” says Dambisa.
Which industry sector will contribute most to the global economy?
When asked this question, the 56 percent of the audience voted for Energy. Dambisa said that she would have linked commodities to energy, pointing out that “There are 25 wars underway in the world today that have their origin in shortage of commodities.”
Gerard said that we can’t ignore telecoms and retail: “They will continue to fuel and enable growth.
What’s next for the global economy?
When asked what three key global economic developments they predict over the next 12 months, Gerard answered:
- There will be a shift in global economic power from West to East. The US economy will have a slow recovery.
- Greece will leave the EU.
- Holland will prove a blessing in disguise as the Franco-German alliance remains strong.
- Expect much more volatility.
Dambisa agreed with Gerard but added three more:
- There will be many more regional agreements.
- Commodities, commodities, commodities.
- Don’t focus on just the obvious emerging economies.
