Although 2012 was not exposed to the Mayan prophecy, recession in Europe, sluggish growth in the economy of the United States, and a sharp slowdown in China and in most emerging market economies, weak job creation, stagnant incomes, political blunders and persistent downward pressure on financial sectors worldwide and turmoil in the Middle East were marked. These are causing serious economic and geopolitical risks there and elsewhere and a resultant oil price increase hindered global growth. The US, Japan, China, Euro-zone, the UK and emerging economies viz. Brazil, India and Russia dominated the world economy in 2012. The economies are so much vigorously intertwined that a deep recession in any economy has the potentials to make vulnerable the others which affect the world economy highly, let alone the economies of the developing countries.
But how will the New Year be affected by those factors or what are the optimistic words that will favour 2013 is a point to ponder. There are obviously some gloomy points, which show disappointment. The Federal Reserve of the USA and other central banks are clearly expecting a hardly vigorous recovery by keeping close to zero interest rates. Yet, stock markets do not show very optimistic signs. After the global financial meltdown, high unemployment remains as a significant problem for many Western countries including the US and some Euro-zone countries. In the US, almost five million people are long-term unemployed whereas the situation is worse in Europe. Italy and Portugal are in serious struggle with youth unemployment rates over 30 per cent while Greece and Spain have the rates crossing 50 per cent. The situation compelled many countries to resort to policies of austerity. The recession in Europe and the fiscal cliff of the US have cut off exports of the developing countries. As a result, the countries are facing shortage of foreign remittance, rigidity in capital, increasing risks to cover the fixed cost such as labour wages and salary, godown rent and so forth. The impacts are cyclical and some Third World countries are facing vulnerable situation due to recession in big economies. Except those weak drivers of growth, the weight of debt and the failures of politicians, Japan's snap vote, the reshuffle at the top of China's Communist Party and the US presidential election within a six-week period are significantly responsible for crippling the growth of the world economy as these are three largest economies representing 40 per cent of the world's GDP.
If one side of the coin holds pessimism, then the other side must have the optimism. At an online debate titled 'Will the world economy be in better shape in 2013 than in 2012?', arranged by The Economist, Anatole Kaletsky, co-chairman and chief economist of GaveKal Dragonomics put forward three broad arguments for optimism about 2013: long-term trends in globalisation and technology, short-term cyclical forces; and expectations among businesses and investors where his opponent speaker Mohamed El-Erian, CEO, PIMCO (a global investment management firm), who was against the motion, also admitted and stated some points focussing stabilisation of the American housing sector, profitability of banks, strength of their balance sheets and robustness of the finances of large corporations. He also acknowledged that Europe has materially reduced the risk of financial implosion, with policymakers evolving from denial to more coherent decision-making while China's new leadership is committed to facilitating a soft landing for the country's economy. It has already showed signs of succeeding. The Economist Intelligence Unit anticipates that global GDP (measured at purchasing-power parity) will grow by 3.4 per cent in 2013, but an improvement on 3.0 per cent achieved in 2012.
According to the latest GDP forecast estimates of the Economist Intelligence Unit (EIU), Macau will be the fastest growing economy this year and Mongolia will be in the second place Meanwhile, Europe will still be ailing, with Greece leading the decline. After Greece, the shrinking economies will be of Portugal and Spain.
One of the big four audit firms Price Waterhouse Coopers, LLP (PWC) published its predictions about 2013 world economy in its website. As per their projections of PWC, the advanced economies are projected to be smaller than emerging economies in 2013 for first time since reliable records began. Emerging economies will be in the 'driving seat' of global growth in 2013. Cities of the emerging world will be expanding and these will be a gateway to young and new affluent consumers of the world. The US will be growing by around two percent but Euro-zone will still be flat at best. Commodity price instability will continue.
In 2013, China, India and Brazil will together add around one trillion dollars to the world economy in nominal terms. This is equivalent to the entire annual economic output of Switzerland. China alone will add $788 billion, equivalent to the annual economic output of the Netherlands. In 2013, Australia will overtake Spain to become the 12th largest economy in the world. The US and China will remain first and second while the UK will remain sixth, if PWC's predictions are to be believed.
Against this backdrop, it could be said that New Year brings new expectations and new expectations mean new hopes. Everyone from a professional to a layman desperately wants 2013 to be better for the global economy than 2012. But there is a popular Bengali maxim: 'The days passed were better, the days coming are worse.' Since future is always uncertain, it is wise to be highly cautious despite favourable analysis. Lastly, to paraphrase Bette Davis in 'All about Eve', "Fasten your seatbelts, 2013 is going to be a bumpy year!"
Published : The Financial Express, Views & Opinion, Saturday, 16 February 2013
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