The US is creating big entrepreneurs, producing gigantic companies and rocking the world with shale revolution. Despite these magics, the world’s largest economy has registered a decline in GDP during the first quarter of this year.
Another developed peer of the US, – Europe has not escaped from the 2007 crisis and is anxiously awaiting the default shock from Greece.
Now, who has the capability to give energy to the world economy when it is undergoing second biggest crisis phase in the last one hundred years?
If the consensus answer is the Emerging Market Economies, World Bank’s Global Economic Prospects Published in June disagrees with it.
The World Bank says that the charisma of the EMEs is over. Rather surprisingly, it urges the old man – the developed world to stimulate economic growth.
But it seems that the WB has seriously underestimated the demographic profile of both groups in producing economic momentum. We should not forget that despite high tech production and MNC consolidation, the developed world is failing to escape from zeroing of economic growth.
For the US and Europe, limits of monetary policy options have already reached. Most importantly, they have to find new ways to escape from the ill effects of extreme monetary policy deployment. Quantitative easing looks like a hand on tiger’s tale.
Certainly, the developed economies can’t run and if it does so, they will lose breath. They conspicuously lack one precious input to fuel growth- favorable demography.
America and the west European countries along with Japan are ageing and hence are structurally unfit to stimulate the global economy in this phase of great recession.
Not much thinking is needed to find that if the world economic growth is to be revived, something notable should be undertaken in the emerging world. They have the population dividend to work out big consumption and employment.
Emerging markets’ evergreen hero, China may have entered a structurally unavoidable slow growth phase. But still, the Middle Kingdom is growing at nearly two and a half times that of the world average.
India, the EME’s new boy supposed to fill the Chinese shoes is consistent in its moderate pace. Still, the declining commodity price cycle will favour India. Both belong to the top five largest economies, with sizable young population. Hence it is difficult to deduct that the EMEs are no more growth engines, even for couple of years.
What the developed world has to do is to support faster growth in the emerging world so that they themselves can cash in from the high growth of the young ones.