To recover, the global economy cannot rely on exporting to the U.S. anymore
Mar 13th 2009 8:30AM
Updated Dec 4th 2009 11:08AM
Sometimes, the global recession looks to be the result of a complex mosaic of different causes and starting points. Other times, it looks as if it took just one link, or chain of events, to set in motion all of the downside that every nation is experiencing today.
That pattern, which wasn't prudent, had businesses around the world borrowing and investing in order to expand operations, as they remained confident in and dependent on sales of goods exported to U.S. consumers.
Of course, economists and other analysts will point out that the above, in-and-of-itself, does not entirely account for the U.S. and global recessions; it says nothing about the Latin America-Europe and Asia-Europe trade linkages, for example.
The global economy that fell into a recession in 2009 was characterized by numerous imbalances, including China's large savings surplus and artificially-low currency, Russia's too-oil-dependent economy, Mexico's still-too-large public sector, the United States' budget deficit and (prior to the recession) low savings rate and its housing bubble.
Nevertheless, the myriad of imbalances does not mean that the world's "export-it-to-the-U.S." model was not the primary problem.
To address the above, along with fiscal stimulus spending around the world, major central banks are deploying quantitative easing and balance sheet expansion. With these measures, they aim to provide both liquidity to credit-constrained markets and to prevent "brutal currency moves" (to borrow a phrase from ECB President Jean-Claude Trichet), which would hurt trade, harm local economies, or delay the global economic recovery. Moreover, given the scope of the financial crisis and the recession, the policies are warranted, many economists agree.
But one thing the world's major economies cannot do, and, by extension, public policy makers cannot let happen: let global commerce remain a function of U.S. consumers going out and buying things. There are strong, initial indicators that strongly suggest that Americans below retirement age have permanently decreased their consumption rate. Hence, global economic growth cannot be dependent on U.S. consumer spending. Rather, the new, post-financial-crisis global economy has to be one with multiple consumption regions around the world -- regions that spawn multiple engines of growth. A global economy structured in that way will be more-balanced, and more-capable of sustainable GDP growth.
And, rest assured, business executives, investors, and typical citizens alike are all looking forward to sustainable GDP growth.
Financial Editor Joseph Lazzaro is based in New York.