Guest Post: Global growth becoming less US-centric
Guest Post by Oxford Analytica
The OECD yesterday forecast world growth of 3.4% in 2010. The OECD’s baseline forecast projects a world in which the US household savings rate is unchanged from 2009 and consumer growth picks up by 1.3%. As global trade growth recovers, some reversion to pre-crisis current account dynamics is on the cards. This reversion is only partial, and would not materialise at all under plausible alternatives to the baseline scenario.
Reversion to mean? On the back of recovering global trade, patterns of current accounts in 2010 recall pre-crisis norms:
- The US current account deteriorates by 0.4 percentage point of GDP, on the back of stronger domestic demand growth and an overall real GDP growth rate of 2.5%.
- The euro-area current account expands by half a percentage point of euro-area GDP, consistent with anaemic real GDP growth of 0.9%.
- Japan’s current account expands by 0.3 percentage point of GDP, with real GDP growth of 1.8%.
Underlying change. Three of the four ‘BRIC’ economies (Brazil, Russia, India and China) are projected to provide a larger contribution to net global demand in 2010:
- Brazil and India are projected to run larger current account deficits.
- China’s surplus is projected to shrink for the second year in a row.
The OECD’s collective current account deficit is projected to expand by 13 billion dollars (mostly on a US deterioration) while the non-OECD’s collective current account surplus (excluding the Middle East and Africa) shrinks by 96 billion dollars.
De-coupled or re-coupled?
In line with a variety of current forecasts, the OECD’s baseline scenario portrays a world in which recovering trade and demand growth is not postulated on a sharp US rebound.
This is evidence that the poorly named ‘de-coupling’ phenomenon is coming to fruition. The thesis does not posit a de-globalised world, but one in which growth in final demand is less OECD-centric. This process is at hand, with risks both to the downside and upside:
- Liquidity panic. A sharp reversal in the dollar in 2010 would test the ability of emerging markets to withstand a whipsaw of capital flows (and asset prices) arising from variable G3 risk appetites. This is test many of them are likely to pass, thanks in large part to highly liquid net foreign asset positions vis-a-vis the late-1990s reversal in capital flows.
- US rebound. A more vibrant US household sector would produce a stronger global growth outturn. This would add steam to commodity prices, not least oil. While such a result would undoubtedly feed public anxieties over monetary and fiscal stimuli and the path of inflation (especially in the euro-area), such worries would almost certainly be overdone.
Outlook. The strength of recovery in the US economy remains the key swing factor in global forecasts for 2010. A ‘double dip’ would see US growth drop back in early 2010 as consumers fail to sustain momentum in the short run, potentially halving the forecast growth rates for consumption and GDP compared with OECD figures — and keeping the US current account deficit in decline. Alternatively, consumer confidence could produce a much stronger rebound in 2010, albeit below-par, leading to deterioration in the current account.
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