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作者：謝國忠 | 评论(0) | 标签:金融危机, 新兴经济, 美元, 谢国忠
Occasional Thoughts
Emerging economies take charge
Andy Xie
10 November 2008
Over the weekend emerging economies are showing more understanding of what should be done than most OECD countries. The G-20 finance ministers in Sao Paulo called for coordinated global fiscal stimulus to stabilize the global economy. The BRIC finance ministers at the same meeting were talking about coordinated measures to increase trade and capital flows between their economies. The prominent emerging economies are behaving like adults. That is very important. This crisis has much to do with the unsustainable relationship between developed, especially Anglo-Saxon, economies, and emerging economies. To regain growth and sustain globalization the leading emerging economies need to take more ownership in managing the global economy.
China's announcement of fiscal stimulus is well received by the market. It is not yet entirely clear how much of the package represents new money. From the announcements of the Ministries of Railroads and Communications and the State Council it seems that the stimulus amounts to 2% of GDP. The amount is obviously insufficient to reverse the economic deceleration due to export and property contraction. However, the stimulus will cushion the downturn and should be welcome news for the market. More importantly, it represents a change of thinking at the top. Until one month ago the official line was still that China was doing fine despite the global crisis. The change of mind will lead to more fiscal measures, if need be, to stabilize the economy.
The United States seems to be on the verge of a second stimulus package of around $300 billion with focus on investment rather than consumption. This is certainly a step in the right direction. The US needs to expand its production capacity to boost income and cut trade deficit. Consumption stimulus only worsens its imbalance. The negative wealth effect on consumption in the US is probably $700 billion. The housing investment continues to shrink. The auto sector continues to collapse. Capex is probably shrinking too, as CISCO's profit warning suggests. I wouldn't be surprised that the US's domestic demand could shrink by over $1 trillion. The fiscal stimulus may offset that by one third to one fourth. The US's GDP will likely shrink by 3-4%, trade deficit by 2-3% of GDP, and domestic demand by 5-7%.
The US stimulus is negative for the dollar. If the US domestic demand cashes, it decreases trade deficit and repels foreign capital. These two factors work in opposite directions. When the domestic demand is weak enough, the former takes the upside and the dollar strengthens with a weakening economy. At the other extreme, when the US economy is very strong, the capital attraction overwhelms the trade deficit increase and the dollar strengthens with a strengthening economy. The dollar is weak in the middle ground. The stimulus package may put the US economy in the middle.
Korea is another significant economy that has announced over 1% of GDP in fiscal stimulus. Most other economies are still relying on cutting interest rates. The Bank of England and the Reserve Bank of Australia have cut very aggressively. As I have written before, lowering interest rates is good for financial stability but won't stimulate demand under the current circumstances. Asset deflation has cut the equity capital of borrowers. Banks are not in a position to lend to undercapitalized borrowers. They want to lend to governments. Hence, fiscal stimulus works!
Europe is very reluctant to stimulate for good reasons. They just incurred huge costs in recapitalizing their banks, have high levels of fiscal deficits and national indebtedness. Europe is about the same size as all emerging economies combined. If Europe doesn't do a significant fiscal stimulus, the downward trend of the global economy cannot be stopped.
Taking into account of what governments are doing on interest rate and fiscal stimulus, the global economy will likely contract this quarter and the first half of 2009. The contraction will probably stop in the third quarter of 2009. Vigorous growth, however, won't follow economic stabilization. The past growth dynamic-the US debt-financed consumption and China's debt-financed factory building feeding on each other won't return in the foreseeable future. Boosting trade and investment among emerging economies may be the only scenario for the next growth cycle. This is why what G20 are doing could lead to something significant.
Emerging economies must understand that the developed economies could not carry the emerging economies like before, because the emerging economies have grown to 30% of global GDP and 50% of trade (ex-intra eurozone trade). They are just too big to behave like children in relation to developed economies. For example, they should not wait for the US economy to come back for them to regain strong growth. They need to regain trade by trading and investing between themselves.
For the South-South scenario to work out, we need to see institutional breakthroughs at the G20 level. For example, if BRIC countries sign a free trade agreement among themselves, it would be a major catalyst for a new growth cycle. If China makes investments easier and securer for Arab money, it would make a significant difference.
Conclusion: Fiscal stimulus measures are stabilizing the global economy. But, contraction will last through the first half of 2009. The stimulus is bad for the dollar. A new growth cycle depends on emerging economies trading and investing between themselves.
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