The last six months have seen a synchronized resurgence in economic growth in different parts of the world. Are these the green shoots of a new phase of economic growth the world has been waiting for, almost ten years after the financial crisis of 2007? This may well be the case
It will be recalled that there erupted in 2007 a financial crisis of enormous proportion. Excessive amounts of fanciful loans of questionable recovery had been given by financial institutions to diverse borrowers (sub-prime in the US and inflated property loans in the EU, excessive lending to certain governments in Europe, mountains of failing corporate debt in emerging countries). By 2008, a wide-ranging financial and economic crisis was on the cards already. Millions lost their jobs. Consumers became over-prudent in their spending.
The bad economic effects from this full-scope financial crash were averted by quick huge injections of funds by governments into failing financial institutions. But not dealt away with, really. Central banks dropped interest rates to rock bottom levels; they also carried on injecting huge amounts of liquidity into the system to keep it going. Regulators stepped up rules to instil confidence in the public that the crisis was being reined in. All this, in the hope that economic growth, which had collapsed abruptly, would soon resume at the pre-2007 rates.
There were the first signs of recovery by 2010. Many hoped that the worst was over and that these were the first green shoots of a globally synchronized economic uptake. That was a mistake, a false dawn.
Hopes were dashed when the sovereign debt crisis of the euro area suddenly took centre stage. It abruptly came to light that governments, especially in Europe’s southern periphery, had gone bankrupt. The world’s biggest financial institutions and others which had bought government bonds in huge amounts, could have taken down several economies along with them had they been allowed to collapse. A coordinated central bank program across the Atlantic salvaged the world economic order from yet another collapse.
Hoping for a turnaround this time
The situation seems to be improving at long last. The last six months have seen a synchronized resurgence in economic growth in different parts of the world. Are these the green shoots of a new phase of economic growth the world has been waiting for, almost ten years after the financial crisis of 2007? This may well be the case. Studies have shown that in the event of a severe financial crisis, economies take longer to recover, typically 8 years.
Signs of growing economic activity may be seen in new global developments. It is a good sign that prices which were feared to go downward into a deflationary downspin, with continuing economic under-performance, are not doing so. The Economist’s All-Items dollar commodity-price index shows that as at March 2017, commodity prices have risen by 10.6% over one year; the sterling All-Items commodity price index is even higher at 28.8% (sterling has depreciated) while the Euro All-Items index increased the last year by 15.5% over the same period. All three in the same positive direction.
A rising price trend implies higher profits for companies. That implies more investment can be undertaken by them. Indeed, an estimate by economists at JP Morgan Chase, an international bank, shows that worldwide spending on new equipment by business increased at an annualised 5.25% over the last quarter of 2016. Behind all this is increased spending by consumers constituting a new phase of sustained demand.
Could it be that consumer confidence which was severely disrupted after the onset of the 2007-08 crisis is getting restored? It looks like it if one bears in mind that the current economic rebound is embracing a wide geography from India and China, on the one side, to the US, UK, Brazil and Russia, South Korea, Taiwan and Japan, on the other. There are some laggards like Turkey and South Africa but these don’t weigh down the overall emerging bright picture from Asia to Europe to America.
A spurt in global aggregate demand backed by higher pay for workers and increasing employment is behind the new spurt in global growth. In particular, there is a pick-up in the prices of machinery and equipment, of raw materials, of IT products. In other words, demand for both consumer and capital goods is on the rise and, along with it, investment by businesses. Exports and manufacturing are ticking up fast. There’s an opportunity for our exports to catch this rising tide.
Mauritius hasn’t been doing as well as it did in the past because our export markets have been down during the past decade. Caught up in unspectacular growth conditions, it seems, we’ve been looking for someone to blame for this lack of success in the past decade. The problem is somewhere else.
Investment hasn’t performed well because the market out there hasn’t been eliciting sufficient demand for activities we undertake but also because it has not been faring too well the past 10 years. Now that there are signs of a turnaround in our markets and a shift perhaps to the Asia-Pacific region, a collective public-private sector effort to re-orient our activities towards producing what the external market is looking to buy up, should pay off.
There is no need to drive the wedge inward. Sticking to the traditional grumpy attitudes will not help, either. Success comes to economies which take advantage as the first movers when global economic conditions change. If we don’t have what it takes to successfully embark on those upcoming markets, we should lose no time to create the required local conditions to do so. We should do so before self-important chaps who are increasingly looking inward over there do not stop the ball of economic growth, the fruit of all the labour of the past ten years, bouncing.
65 years ago Mauritius Times was founded with a resolve to fight for justice and fairness and the advancement of the public good. It has never deviated from this principle no matter how daunting the challenges and how costly the price it has had to pay at different times of our history.
With print journalism struggling to keep afloat due to falling advertising revenues and the wide availability of free sources of information, it is crucially important for the Mauritius Times to survive and prosper. We can only continue doing it with the support of our readers.
The best way you can support our efforts is to take a subscription or by making a recurring donation through a Standing Order to our non-profit Foundation.