hould have been cause for some (modest) celebration – yet nobody even noticed as another milestone on the road to recovery was finally passed the other day. The total industrial output of the G7 – the UK, the US and five other top nations – added to that of the seven largest emerging economies – including China, India and Brazil – has now overtaken its pre-recession peak. In other words, while the recession wasted a couple of years of Planet Earth Inc’s economic expansion, total global output hit a new record in July and almost certainly another in August. But the devil is in the detail, as always.
Production in these 14 countries – which now account for the bulk of global GDP – collapsed by 14 per cent between February 2008 and February 2009. It took only 17 months to recapture the loss, as an excellent analysis from Henderson’s Simon Ward calculates. It was not quite a V-shaped recovery but stunningly close. The reason why all of this sounds so weird and counter-intuitive to those of us in the West who are still suffering from elevated unemployment and falling confidence is that so much of the global recovery has come from ultra-fast expansion in Asia. The West is growing again but its output level remains substantially lower than at its pre-recessionary peak. It will take a while before this is no longer so. This is certainly the case in the UK, where GDP still remains lower than it was just before the bubble burst.
The E7, by contrast, has contributed 9 percentage points of the 16 per cent recovery in combined output from the February 2009 low. E7 output is now 15 per cent above its pre-recession peak; its rate of growth has been entirely unaffected by the global recession. All of which confirms that the shift in power from G7 to emerging nations has accelerated further. It is likely to continue to do so over the next few months: leading indicator surveys in the G7 point to a sharp reduction in growth, though expansion will pick up again soon. Leading indicators in emerging nations have also dipped but nevertheless still suggest decent growth.
But the main challenge is structural. Growth in the emerging world is even coming from countries that few realise are worth watching – especially in Africa, where a growing number of nations have started to put in place pro-growth measures. The successful ones invariably rely on pro-market changes, rather than on foreign aid. One interesting case is that of Tunisia: Newsweek ranked it as the best country in Africa, while the World Bank’s Investing Across Borders 2010 report argued that it stands out in the Middle East and the Maghreb for its looser restrictions on foreign investment and other reforms. The World Economic Forum’s global competitiveness report 2010-2011 ranked Tunisia as 32nd out of 139 countries.
Rich countries cannot compete exclusively on unit costs. They do need to boost their productivity, which is being held back by poor education, infrastructure and excessive costs. Most importantly of all, they and their citizens need to wake up: complacency and hubris are deep-seated diseases eating away at the developed world’s prosperity. The first thing one notices when travelling to Shanghai, Mumbai or Dubai is the extraordinary energy, the desire to grow, conquer and succeed. Unless we rediscover some of that raw passion, we will condemn ourselves to years of relative decline. The choice is ours.