Will the eurozone break up? Will China’s growth slow dramatically? Will the US get its economy back on track or remain caught up in political rows?
One of the reasons why we are able to talk in terms of, for instance, developed end emerging economies is in part due to the ties – historic, political and social as well as economic – that bind each group together. When these two started to become dependent on each other, and trade more with each other, the fate of one directly impacted the other and the lines start to blur; hence we have China as a ‘developing’ economy when it is the second largest economy on the planet and will contribute as much as 24% of next year’s global GDP.
This works both ways though as this interdependence that led to growth across the piece can just as easily lead to a downturn on an equal scale which is why we talk in terms of a global financial crisis not just a financial crisis.
Pretty much every investment story we write somehow involves the macro picture of the US, China, Europe or the UK and how what happens there will influence whatever it is we are writing about. This is unlikely to change for decades, if at all, but what the financial tightening is doing is forcing governments to look closer to home and not rely so much on what it exports or imports.
India has been doing this for years, which partly explains why it hasn’t taken off in quite the same way that China has, and is described as an “inward-facing economy”. Yet it is still very integrated with what is going on around it.
Indeed China, for example, is subtly reshaping its economy – according to Ken Miller in a recent article in Time – so it relies more on a domestic service sector rather than manufacturing for overseas buyers – the latter will still dominate, just to a lesser degree.
Everyone knows that Europe is a very sick man but domestic governments and consumers are tightening their respective belts and focusing on their own output for their own ends. As well as tremendous amounts of rhetoric about a global recovery, Europe is also putting plans in places – or talking about putting plans in place – to help Europe recover.
This is not protectionism, but it is a shift to focusing on home-developed goods and services for the domestic market, with governments having to concentrate on getting their own house in order -getting their and will hopefully make a global economic recovery that much more sustainable.
