Como sempre o artigo é muito extenso mas vale sempre a pena ler.
Global: Global Oomph?
Stephen Roach (New York)
The first whiffs of meaningful recovery in the US economy have given rise to hopes of a synchronous upturn in the broader world economy. Is the global reflation play, sparked by massive policy stimulus, finally bearing fruit?
Such hopes are not just idle conjecture. Asia, including a long-dormant Japanese economy, suddenly appears to be coming back to life. There is even a case for revival in Europe, sparked by a renewed weakening in the euro and encouraging signs in forward-looking business expectations data. Reflecting these developments, we are making an upward adjustment to our long sluggish forecast of world GDP growth. Specifically, we are boosting our 2003 estimate for world GDP growth to 2.8% (from 2.6%). Relative to the 2.4% low point in our forecast cycle hit last April due to misplaced fears of SARS-related shortfalls in Asia, this adjustment now brings the cumulative upward revision to our current-year global growth estimate to 0.4 percentage point. This latest revision mainly reflects stronger growth estimates for Japan, where we are boosting our 2003 figures to 2.0% (from 1.4%); relative to our April baseline, we have also boosted growth estimates for the United States and Asia ex Japan. In all cases, these adjustments are largely a mark-to-market exercise reflecting the resilience of incoming data. We have left unchanged our 2004 global growth estimate of 3.8%.
Do not get carried away by this reworking of our numbers. This upwardly revised global growth forecast hardly paints a picture of vigorous recovery. Indeed, relative to the widely accepted global recession threshold of 2.5%, our updated 2003 estimates still call for an anemic recovery, at best. Moreover, while we are still banking on a more vigorous acceleration in 2004, our current global growth estimate of 3.8% is only 0.2 percentage point above the world economy’s post-1970 growth trend of 3.6%. By our estimates that recoups only a small portion of the cumulative shortfall from trend of 2.9 percentage points that we calculate opened up over the 2001-03 interval. Consequently, in macro terms, our upwardly revised baseline forecast is still characterized by a persistently wide “global output gap” -- an outcome that remains consistent with lingering disinflationary pressures. For a low-inflation global economy, that means it would be entirely premature to call off the deflation alert.
But it’s change at the margin that always matters most for financial markets. And by having made cumulative upward revisions of 0.4 percentage point to our 2003 baseline global growth forecast over the past four and a half months, it’s tempting to opt for the momentum play and conclude that there’s more to come on the upside. Indeed, Dick Berner believes that 3Q03 real GDP growth in the US economy may now be tracking well in excess of his once out-of-consensus 4% second-half growth call (see his 18 August Global Economic Forum dispatch, “Challenges to a Strong Recovery”). With the US economy apparently on the move and glimmers of faster growth evident elsewhere around the world, many have concluded that a synchronous rebound in a US-centric global economy may now be at hand.
Calling turning points is always the most formidable challenge for any forecaster. That challenge often gets complicated by the self-perceived rigor of the forecaster’s analytical framework -- those proverbial “tinted glasses” that all too often make it hard to see the world differently. I certainly confess to such biases -- having been wedded for some time to a framework that stresses the persistent imbalances of a US-centric world. Fortunately, I have had the benefit of two weeks of mindless holiday that enable me to be a bit more open minded in coming up with a fresh perspective on the global outlook. And so in the spirit of thinking outside of my own box, allow me to probe the possibility of a synchronous recovery in the global economy.
In my view, such an outcome must satisfy three key conditions -- the first being the sustainable vigor of the global growth engine, the US economy. For the record, our US team has long endorsed a rapid growth scenario that calls for 4.2% real GDP growth in 2004. Their case rests largely on the impacts of policy stimulus and improved financial conditions. Holiday or not, I still see the US primarily through the lens of a post-bubble economy that has failed to purge the excesses of the late 1990s. The extremes of a record-low net national saving rate, an unprecedented current-account deficit, and record household sector debt loads still speak of powerful headwinds that I believe will restrain cyclical vigor once the impacts of policy stimulus wear off. Moreover, I continue to believe that Corporate America, lacking in pricing leverage, will continue to fixate on cost cutting, turning increasingly to outsourcing -- both at home and abroad -- to meet its capital-spending and head-count needs. That’s why the US economy is still missing some 4 million jobs and $241 billion of private sector real wage earnings when compared with the profile of a standard cyclical recovery (see “The Half-Empty Glass,” Global Economic Forum, August 8, 2003). As long as hiring and wage-income generation remain so woefully deficient, I believe there will be little fundamental fuel for the world’s main growth engine.
Global linkages are a second building block for the case for a synchronous recovery in the world economy. The issue here is whether a US rebound can spark self-sustaining upturns in the other major economies of the world. In the end, I believe the answer to this question boils down to the distinction between two main sources of growth -- externally driven growth and autonomous domestic demand. In my view, barring the acceleration of domestic demand growth outside the United States, it will be very difficult for the world economy to enjoy a synchronous recovery. Given the lingering sluggishness in the European economy -- with the only real impetus over the next year likely to come from a weak-euro-induced boost to external demand -- the debate on this count hinges largely on Asia.
The case of Japan is especially interesting in light of our latest forecast adjustment. While our Japan team now believes that a moderate rebound might be sustained through mid-2004, they still worry about a relapse in domestic private demand in the second half of next year; with structural reforms advancing only gradually, a fading inventory kick is expected to reinforce the downside of lagging job creation and income generation (see our Japan team’s August 20 dispatch, “2003-04 Forecasts: Cyclical vs. Structural Pressures”). Elsewhere in Asia, the trade cycle remains the dominant factor. Norman Villamin, our Asian equity strategist, expresses concern that there is little domestic demand support behind recent increases in the leading indicators in Taiwan and Korea; he also raises a note of caution on Chinese domestic demand -- especially in light of a recent increase in China’s auto inventories. In short, the case for a synchronous rebound in global domestic demand remains a weak one, in my opinion.
Finally, there’s the critical issue of balance -- or in the instance of today’s global economy, a serious state of imbalance. America’s gaping current account deficit personifies the extraordinary state of imbalance in the world economy. The likelihood of a further reduction in domestic US saving, in conjunction with relatively deficient overseas growth, suggests that America’s external imbalance could be headed from 5.1% of GDP in early 2003 to 6.5-7.0% by the end of 2004. I remain very suspicious of the world’s ability to stage a synchronous recovery if the global growth engine is laboring under such an extraordinary external constraint. Indeed, the last three US-led synchronous recoveries in the global economy all occurred when America’s current account was in effective balance: that was the case in the mid-1970s, the early 1980s, and again in the early 1990s. Synchronous global recoveries rarely come out of thin air. They are invariably triggered by a spark from one of the world’s major economies; in the past 30 years, that role has typically fallen to the United States. Yet with the current-account shortfall of the global engine now at a record -- and likely to go further into deficit over the next couple of years -- the world is lacking the balance it needs to sustain a synchronous recovery.
As a card-carrying growth skeptic, even I concede that bouts of temporary acceleration are possible. Just such a rebound now appears to be under way. Financial markets are now discounting such an outcome, and we have made a modest upward adjustment to our baseline forecast to reflect this apparent quickening. But as investors now look beyond this cyclical rebound, there are two alternatives to consider -- a full-blown synchronous recovery in the world economy or yet another in a long string of relapses. In my view, the case for a relapse remains the more compelling of the two options. The precarious post-bubble state of the world’s growth engine, the lack of global demand linkages, and serious cross-border imbalances all speak of a lingering vulnerability that reflationary policies have not resolved. As someone who has been on the other side of the global growth debate for most of the past four years, I certainly recognize that the day will come when the world economy finally shifts gears and moves to a more sustainable and vigorous growth trajectory. In my view, that day is not yet at hand.
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