In the immediate aftermath of the September 2008 eruption of the global financial crisis, the claim was made that so-called “emerging markets,” including China, India and Brazil, would be able to decouple from the major capitalist economies and provide a new foundation for growth in the world economy as a whole.
That piece of economic fiction has been exposed. Not only are the “emerging markets” unable to provide a boost to growth, they are rapidly becoming a new source of global instability.
Last week, the Wall Street Journal cited a report from Bridgewater, the world’s largest hedge fund, which noted that the major economies, including the US, Europe and Japan, were now adding more to world economic growth than the emerging nations.
That result, however, does not point to a revival in the advanced countries. Rather, it signifies the weakening of the global economy as a whole. Growth rates in all the major economies remain well below the levels attained in 2007-2008, with no prospect of the pre-crisis rates ever being seen again.
A survey of economists released by the Federal Reserve Bank of Philadelphia found that they expected the US economy to grow by only 1.5 percent in 2013, well down from their prediction of 2.0 percent in May. Growth will not pick up in the longer term, according to a report by a leading JPMorgan economist, which found that the potential growth rate for the US economy, which used to be 3.5 percent, had halved.
The situation is even worse elsewhere. Europe continues to stagnate, with the euro zone economies growing by only 0.3 percent in the June quarter, which translates to an annualised rate of 1.1 percent. The return to positive growth, after six consecutive quarters of contraction, by no means signifies that Europe has “turned the corner.” The euro zone economy as a whole is still 3 percent smaller than it was in 2008. Most analysts consider that an annual growth rate of at least 2-3 percent over the next three years is needed to start to bring down unemployment, and there is no prospect of that.
The Wall Street Journal commented that it was “hard to see how Europe can reach escape velocity.” The newspaper continued: “Among the brakes on the recovery: continuing austerity, lack of affordable bank loans, rising unemployment and weak household incomes, and lack of investment by companies that are still operating well below capacity.”