On everyone's mind: Where is the global economy headed and what will be the consequences for your business and wallet for the medium to long-term? Uncertainty in the context of a recession and shifting markets is always worrisome, and questions can emerge without their accompanying answers.
To respond to a couple of your queries, we would like to share with you an extract from an interview with Nouriel Roubini, the economist recognized as correctly predicting the real-estate crash in the U.S. and recession of 2008, by wobi.com Editor Chris Stanley.
-I’d like your thoughts on the general state of the world economy: what gives you most cause for optimism?
I would characterize the global economy as a glass that is half full and half empty. There are some positive trends, and there are other ones that are downside risks. On the positive side, I would say emerging markets are becoming a larger share of the global economy and are growing robustly. This is not just cyclical, but a positive circular phenomenon. Secondly, the balance sheets and the financial situation of high-grade corporations in the emerging markets are strong; they are full of profits and cash, and as they become more confident they will continue to spend more. Thirdly, the process of globalization is continuing, there is more openness to trades and goods and services and capital and technology and ideas. In the long-term this will be a positive source or productivity, growth and innovation.
-And what gives you cause for worry?
On the negative side, I would say that the growth rate of the world’s most advanced economies (Europe, Japan and the U.S.) has been very weak, and will remain so. There is even a risk of a double dip recession, particularly in the Eurozone, the U.K., and I would suggest there is data showing that in the U.S. as well there is the possibility of another economic downturn. Secondly, I would say the trouble in the periphery of the Eurozone is severe, they are chronic crises; economic, fiscal, banking, and unless the problems of the Eurozone are resolved with restoration of growth and competitiveness, there is a risk of a disorderly breakup and default that will have a long-term impact. The third risk: today China’s economy is doing well, but its growth is based on net exports, and too much fixed investment is probably not so sustainable anymore. So China has to move away from this to model to less savings and more domestic consumption. If China does this, it could have a soft landing; if not a couple years down the road it could have a hard landing, which would have serious implications for the economies of Brazil and Latin America.
-What are the major challenges for Latin America?
On the positive, I would say that after decades of economic, financial and political crisis of every kind (banking, hyperinflation, currency, debt-crises, switching from authoritarian to populist and back to authoritarian regimes) today Latin America is generally much more stable. There are more democracies, the governments are more stable, and there has been a return to robust economic growth in the private sector. Governments are also expanding and providing public services. Commodity prices that have been high and rising thanks to China and Asia have also helped the growth rate of Latin America. On the down side, it is not a homogenous region, and countries have varying political systems. There are plenty of economic challenges. For example, in Brazil there is a need to accelerate structural reform, invest in infrastructure, education, make the economy more flexible, and contain the growth of the public sector so the potential growth of the country can become higher at the same time as the actual growth rate. Brazil is also dealing with social issues such as poverty, unemployment, inequality and wealth that are very important for the country to address.
-Do you see a new type of global capitalism emerging? How do companies need to adapt to this new environment they will be operating in?
There is not one single economic model that is perfect. I would say that the successful systems are market-based economies with private sector development, but you also need provisions on the financial system. There is a delicate balance between good market and governmental policies. In this context, global companies need to realize the need to be global unless you are only catering to a very domestic market. The key for a corporation to succeed is to be innovative, competitive, to adapt and to be able to take on the challenge of global markets and internationalize their own processes. No country is an island.
-What is your medium to long-term vision for dominant and emerging markets?
On relative terms, there will be a rise a rise in emerging market economies. Even if Europe, the U.S. and Japan were growing at their normal rates, their growth rate is 2-3% while emerging markets experience 4-5, sometimes 6-8% growth. If this continues, there will be a shift in economic power from West to East, North to South, from advanced economies to emerging markets, from G-7 to G-20, from U.S., Europe and Japan to Asia, Latin America and other parts of the emerging world. With these changes, we could shift from seeing seven major powers (with the U.S. as the leader) to one of twenty major powers, and in a multipolar world coordination and corporation becomes much more of a challenge.