At the beginning of the year, many mainstream economists reckoned that China and other ‘emerging’ economies were going south and would drag the rest of the world down with them. I disagreed at the time. The optimism for recovery then switched to the US and even Europe.
However, as we move into the last part of 2016, it has become clear that the US economy has slowed down even more and Europe has achieved hardly any pick-up at all. So now the optimism has swung back to the major emerging economies. As the UK’s accountancy firm Deloitte economists put it today: “The downward trend for emerging market activity seems to have run its course. Growth is widely expected to accelerate in 2017. India is forecast to grow by 7.6% next year, the fastest rate of growth among any major economy. Brazil and Russia are likely to emerge from recession. Chinese growth is expected to ease, but, at a forecast 6.2% in 2017, would still be far higher than global averages. Crucially, the risk of a Chinese ‘hard landing’ has eased.”
So it’s back to the future with the so-called BRICs leading the way out of the depression. We’ll see.
Talking of back to the future, one of the biggest policy calls from mainstream economists has been for governments to launch more infrastructure spending (building roads, rail, bridges, power stations, telecoms etc) to get economies going. So far, this has been largely ignored by governments trying to cut budget deficits with reductions in government investment spending or facing high public debt levels.
The latest call on this front has come from the economists of the Australian investment outfit, Macquarie. Why not colonise Mars? “It is not as crazy as it sounds,” wrote Viktor Shvets and Chetan Seth from the Macquarie global equities team. “A giant Mars colonisation program would create a vast, capital-intensive industry which would span the globe, create jobs, and address the global economy’s productivity problem.”
You see, the world economy is not growing at a sufficient rate because there are “declining returns on investment”. So what we need to do is to start a huge government programme to colonise Mars, similar to the space program of the 1960s under Kennedy that led to landing on the Moon.
The weekend meeting of the heads of state of the top 20 economies in the world (G20) in the Chinese resort of Hangzou concluded that the global economy was still in trouble. The IMF reckoned 2016 would be the fifth consecutive year in which global growth was below the 3.7% average recorded in the period from 1990 to 2007.
And just before the G20 summit, the IMF issued a report forecasting even slower growth than that rate. “High frequency data points to softer growth this year, especially in G-20 advanced economies, while the performance of emerging markets is more mixed ». It went on: “The global outlook remains subdued, with unfavorable longer-term growth dynamics and domestic income disparities adding to the challenges faced by policymakers. Recent developments—including very low inflation, along with slowing investment growth and trade—broadly confirm the modest pace of global activity. The decline in investment…
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