I’m referring, of course, to the emerging markets. For them, the crash of 2008-09 has turned out to be little more than a scare; 2010 will be the year they show the rest of us who is really in the driving seat. The massive, historic power shift from east to west is back on track.
HSBC’s chief economist Stephen King tells me he expects the world economy to grow 2.9 per cent this year – but while rich nations will expand by 1.9 per cent, emerging nations will jump 6.2 per cent and China 9.5 per cent. HSBC’s excellent emerging markets index rose to 56.1 in the fourth quarter from 55.3 in the third quarter, signaling the strongest quarterly increase in emerging market manufacturing and services since late 2007 (a reading above 50 means growth).
There was much talk of decoupling during the bubble days: many thought the world would continue to grow even if the US fell into recession. This turned out to be nonsense: the credit crunch led to an unprecedented collapse in world trade (which relies on trade finance) with devastating effects on all economies, rich or poor. But the rebound in Asia suggests that we are now seeing a more realistic form of decoupling: the global economy has become more China-centric. Growth in the emerging world is no longer driven solely or even primarily by US and European consumers. One reason for China’s emergence as the world’s top exporter in 2009, overtaking Germany, is the growth of trade between emerging nations – goods now flow south-south as well as south-north.
Even with the modest recovery of recent months, the rise in commodity prices is not being driven by the West, other than via the impact of ultra-loose, bubble-blowing monetary policy. Rather, the increase is primarily being fuelled by a shift in the source of global growth away from the West and towards China. By bolstering commodity prices, China’s success is also insulating other emerging nations – the main exporters of raw materials – from the West’s troubles. Higher commodity prices, in turn, make a Western recovery more difficult by eating away at spending power in commodity-importing nations. Part of China’s recovery was caused by government-sponsored cheap credit and infrastructure spending – but in the main it is sustainable and due to low costs and increasing productivity.
All of this has serious consequences for London. Labour and the Tories keep talking as if our only competitors were the US, France or Germany. That is absurd. Our real rivals – and greatest potential customers – are the emerging markets. Rather than saddling ourselves with suicidial regulatory costs and vindictive super-taxes, we should be seeking to be as lean and competitive as possible. We need to cut red tape; we need a much smaller and cheaper government. Barriers to employing people and setting up businesses need to be torn down. We must sort out our infrastructure, which is unable to cope at the best of times, let alone when it snows. We need a better education and training system.
One thing is clear: if London wants to remain a preeminent global trading metropolis, we will have to try much, much harder. email@example.com