Why the economy matters more than all else

2017 is going to be a decisive year for the world economy. Markets have kept an optimistic mood on the back of Mr Trump’s statement that he will invest massively in infrastructure. If that happens on a good enough scale, it could trigger a positive multiplier effect on the rest of the US economy. The very assumption that the US economy will not flounder in 2017 is good news.

It may also be safely assumed for the moment that Asian economies (China, India,…) which have been behind the fast pace of global growth in the recent past, will record positive growth in 2017, although not at the pace of the past decades. All is not lost, therefore, despite political uncertainties having taken the front stage in America, Europe, the Pacific region and the Middle East.

Much of how individual economies will fare after 2017 depends on whether geopolitical tensions will become unmanageable enough during this present year. The more the power game of international politics intensifies and ends up in widespread conflict, the more challenging it will become for small open economies like Mauritius to uphold economic growth. A fine balancing act is what we need to steer clear of the turpitudes of global tension.

Thus, if there is a trade war between the US and China, despite not being directly involved, Mauritius will face some of the headwinds out of such a development. Similarly, if Mr Putin decided that he should press down on a US weakened by its own internal contradictions or on an EU labouring under extreme right-wing pressures in individual countries, this will have negative consequences for an export dependent economy such as Mauritius.

It is not surprising that, as it is the case in America, Mauritian entrepreneurs are looking to significant public sector project spending initiatives as the trigger for a round of renewed domestic economic growth. Various key sectors of activity – agriculture, manufacturing, construction, private investment – have under-performed in preceding years. Economic growth has plateaued at around 3-4% per annum in this context.

Along with entrepreneurs, many keen observers regard economic management as critical to uphold the government’s good standing, despite the serial mishandlings of the economy the past two years. Moreover, as the situation is playing out at the global level, there is every reason not to mess up the economy again by sending the wrong signals. It would be best if the economic ship were steered in these difficult moments by tried and tested hands.

Too much is at stake. Since 2017 looks like a year of transition into greater economic uncertainty, a fine balancing of active monetary management restoring public confidence once again, coupled with the right dose of government spending in keeping with our fiscal capacity, is in order. We should not repeat the sort of decisions that have in the past two years unwittingly opened up big funding gaps having had to be filled up with public money at the risk of severely undermining public confidence in the financial system.

The stage has been reached when politics cannot be prioritized over the careful and measured management of the economy. The world economy is not as open as once it was when we thrived, growing both our goods and services. If we tread carefully however, we could set the stage for the economy to expand its scope despite the slowing down of global economic dynamism.

The point is that the world economy appears to be walking on the razor’s edge at the moment. We have to proceed cautiously in such a context of potential longer run economic risks to the global economy. The management of the Mauritian economy has to be, more than ever before, in good and trusted hands, no less, if we want to swim safely with the current tide of global uncertainty.

Anil Gujadhur

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