1 Reasons to be cheerful of world economy (Jim O’Neill in The Guardian) The conventional wisdom about the state of the world economy goes something like this: since the start of the 2007-2008 financial crisis, the developed world has struggled. Emerging countries have fared better, but they, too, have started to flounder lately.
That scenario sounds entirely right – until, on closer examination, it turns out to be completely wrong. Start with economic growth. According to the IMF, during the first decade of this century, annual global growth averaged 3.7%, compared to 3.3% in the 1980s and 1990s.
To be sure, all of the large, developed economies are growing more slowly than they did when their economic engines were roaring. But it is only the eurozone that has badly disappointed in recent years. For Japan, the US, and the UK, the prospects are brighter. It should be relatively straightforward for them to grow at an average rate that outpaces that of the last decade. In addition, the dramatic drop in the price of crude oil will serve as the equivalent of a large tax cut for consumers.
Another factor supporting a more positive outlook is the rebalancing that has occurred between the US and China, the world’s two largest economies. Each entered the financial crisis with huge current-account imbalances. The US was running a deficit of more than 6.5% of its GDP, and China had a surplus of close to 10% of its GDP. Today, the US deficit has fallen to about 2%, and the Chinese surplus is less than 3%.
The only real disappointments are Brazil and Russia, both of which have struggled (again, not surprisingly) with much lower commodity prices. The conventional wisdom on wealth and inequality is similarly mistaken. From 2000 to 2014, global GDP more than doubled, from $31.8tn to over $75tn. Over the same period, China’s nominal GDP soared from $1.2tn to more than $10tn – growing at more than four times the global rate.
In 2000, the Bric economies’ combined size was about a quarter of US GDP. Today, they have nearly caught up, with a combined GDP of more than $16 trillion, just short of America’s $17.4 trillion. None of this is meant to deny that we are living in challenging and uncertain times. But one thing is clear: economically, at least, the world is continuing to become a better place.
2 Recovery aids US jobs boom (Andrew Walker on BBC) The US added 257,000 jobs last month and the number of jobs created in November and December was revised sharply higher. January was the 11th consecutive month in which more than 200,000 jobs were created – the best run since 1994. An average of 336,000 jobs have been created a month for the past three months – the best three-month pace in 17 years and underlining the strength of the economic recovery in America.
The rapid rise in the pace of hiring helped average hourly wages to rise 12 cents to $24.75 in January – the biggest gain since September 2008. In the past year, hourly pay has increased by 2.2%. This is not to forget that the boom is still supported by extremely easy money. The Federal Reserve’s main interest rate target has been practically zero for six years.
And the US is still well below the percentage of the population in jobs that it managed before the financial crisis. For men aged 16 to 64 the figure now is 76.5% compared with 81% in mid-2008. A more buoyant jobs market, along with the significant fall in petrol prices in recent months, helped push US consumer confidence to its highest level in a decade last month.
3 India’s dodgy alliance with the US (Praful Bidwai in Khaleej Times) Ten days after Barack Obama’s visit, it’s clear that its significance didn’t lie in a “breakthrough” agreement on India’s nuclear liability law, whose nitty-gritty is still to be worked out. Rather, it lay overwhelmingly in the “Joint Strategic Vision for the Asia-Pacific and Indian Ocean Region”, and other military agreements.
This is the first time India has agreed to a close long-term military relationship with another power. Along with India’s entry into the US-and-Japan-dominated Asia-Pacific Economic Cooperation forum, this will seek to contain China’s military and economic power as part of the US “pivot” to Asia.
When this was proposed in 2012, Prime Minister Manmohan Singh resisted it because there was a policy consensus against India becoming a permanent ally of any state. The consensus eroded, especially with the 2005 civilian nuclear deal. To get the deal, India voted. Now, by aligning wholesale with the US, Modi has completed what Singh started.
Modi’s strategic embrace of the US carries three major risks. First, the US has made the world more dangerous with its recent interventions in Iraq, Libya and Syria. Second, China has reacted negatively to Obama’s visit. It would be counterproductive for India to enter into a hostile relationship with China — when negotiated solutions are viable.
Third, by antagonising Beijing, India would only facilitate a strategic understanding between China, Pakistan and Russia: the last two have developed significant military relations, and China is Pakistan’s “all-weather friend”. This isn’t good for regional security.
So what is the net result of Obama’s visit? Modi hugged him and addressed him by his first name (an unreciprocated gesture) as many as 19 times. US strategic interests have been advanced, but India’s sovereignty stands diminished. Yet, just before he left Delhi, Obama rightly told a student audience that India cannot succeed without religious freedom, plurality and tolerance. That’s the visit’s sole positive outcome.