One year but a month after the shocking collapse of Lehman Brothers, the world economy has seemingly managed to put the hardest recession since the World War II behind it now. Yet, little progress in changing growth patterns of key locomotives like China and the United States indicates that the global recovery is unlikely to last long.
Policymakers must work harder to address imbalance in the global economy, one of the root causes of the current crisis, to sustain the recovery in their own countries as well as around the world.
Last week saw not only a more than 10 percent increase in China's fiscal revenues in July, which highlighted the robustness and fiscal sustainability of its economic rebound, but also more encouraging signs from developed economies. After an unexpected drop of the unemployment rate from 9.5 percent in June to 9.4 percent last month prompted US President Barack Obama to declare that "the worst may be behind us," Germany and France announced last Thursday 0.3 per cent GDP growth in the three months to the end of June, raising hopes that the worst of the economic crisis is coming to an end in the eurozone.
With analysts rushing to lift their estimate for major developed economies, it looks likely that the global recession might have ended. And the rapid rebound of Asia's emerging economies may even give rise to higher expectation on global growth in coming years.
Such new-found optimism can be justified in the sense that many governments are responding to the crisis effectively. Big stimulus packages and unprecedented loose monetary conditions have so far helped the world to avert a 1930s depression.
However, it is hard to put too much faith in the present recovery as rebalancing remains largely a concept with which everyone agrees.
Take a look at the driving forces behind China, the fastest growing developing economy, and the US, the richest country.
Though falling overseas orders as a result of the global recession have temporarily forced China, the world's third largest economy, to shift away from exports toward domestic demand, a government-led investment boom has almost single-handedly powered the country's V-shaped recovery. China's fixed-asset investment surged by 32.9 percent year on year in the first seven months, contributing to more than three quarter of the country's GDP growth. In short, Chinese people, as they used to do, are still saving to invest rather than consume.
How about US dependence on consumption? A case in point is the success of the "cash-for-clunkers" program that offered credits of up to US$4,500 for trading in old gas-guzzlers for fuel-efficient new cars. The program was so popular that the US government recently signed into law an emergency measure giving an additional US$2 billion after the original US$1 billion ran out three months earlier than projected. For US carmakers in crisis, that is definitely good news. But for US policymakers who believed it is necessary to raise their country's saving rate, the still strong propensity of US consumers to spend in spite of severe financial conditions does not bode well for any attempt to wean the US away from living beyond its means.
Both Chinese and US policymakers deserve credit for fighting the crisis with measures that are very effective in boosting growth in their own countries. A number of Chinese enterprises and US companies have also benefited considerably from the improvement of the two economies. But there is no room for complacency on the part of both policymakers and business decision-makers in the two countries.
In absence of concrete efforts at policy and corporate levels to accelerate and adapt to the needed change of growth pattern and economic structure in China and the United States as well as all other major economies, it is far too early to say that the world has found its way out of the recession no matter how likely it looks at the moment.
(China Daily August 17, 2009)
