A couple of weeks ago, the IMF released its latest World Economic Outlook, the benchmark publication for keeping track of trends in the global economy. The headlines haven’t changed that much since its last report in January: global growth, which rebounded solidly in 2010 (+5.0%) having turned negative in 2009 (-0.5%) will ease back in 2011 and 2012 to about 4.5% in each year. The large gap between the fortunes of developing economies and those of advanced economies will persist, with growth of 6.5% in the developing world well above twice the growth in advanced countries (2.5%). And even that average for the developing world hides a gap between China and India (growing at 8%-9%) and the rest (4-5%). In effect, a three-tier global economy is emerging: China-India, the rest of the developing world, and advanced economies.
The global economic outlook looks, on the whole, pretty fragile. The Asia-Pacific region seems to be in the middle of a period of heightened seismic activity, as Japan and New Zealand know to their cost. The Middle East and North Africa is a mix of insurrection, often violent political disagreement and, in Libya, NATO air-strikes. The world’s largest economy, the USA, will soon have a national debt that is larger than the size of its economy and faces a huge task to narrow its gaping deficit of over 10% of GDP.
As all this is going on, Europe faces its own challenges. Many of them are similar in nature to those in the USA: countries such as Greece, Ireland and Portugal have already paid the price for high debts and a large gap between the money the government spends and the money it raises. Making Europe’s problems worse are internal differences, with growth and inflationary pressures in Germany at precisely the time countries such as Spain and Italy are struggling to resurrect their economic fortunes.
The IMF figures give a detailed insight into one core economic statistic that is often overlooked, the volume of goods and services that a country exports. Exports create jobs and spending, effectively financing a country’s imports. The more a country can export, the more its citizens can enjoy everything from tourism to cars and iPads. It’s no surprise to see that the countries enjoying the fastest growth now – China and India – are projected to see phenomenal growth in the volume they export over the period 2000-2016. India will export six times as many goods and services in 2016 as it did in 2000, China twelve times as many. In contrast, the “Anglo-Saxon offshoots” – USA, Canada, Australia and New Zealand – will see the volume of their exports double in the same period.
In Europe, the increase will be even smaller on average, 84%, the lowest of any region in the world economy. But again, there are huge differences across Europe. The graph below shows the average annual growth rate in the volume of total exports for 17 West European countries for two periods: pre-Great Recession (2000-2008) and post-Great Recession (2008-2016). The most obvious finding is that the average growth rate in exports is set to fall from 5.3% to just 2.5%. This is driven in part – but not completely – by flat-lining exports between 2008 and 2012.
This disappointing trend is not all that surprising, and makes a mockery of the various politically-determined targets for a competitive Europe by 2010, or 2020, or indeed 2030 as no doubt the target will become in due course. What is surprising, though, is the ordering of some of the countries. While one would have perhaps expected “super-competitive” Germany to top the charts for overall export growth and Italy to be close to the bottom, the fact that France and Norway score so poorly must surely be a cause for concern in both countries, for very different reasons.
Norway’s extremely poor growth in the volume of exports – less than 1% a year for 16 years – will be largely offset by higher oil prices. However, Norway’s long-run development cannot depend on an infinite supply of highly priced oil and when that source of growth diminishes, where will its future growth come from?
However academic or far-flung you may regard Norway’s problems, those of countries like Italy, France, Greece and Portugal are certainly pressing. There are three engines of growth in any economy: domestic sentiment, the government, and international trade. High government debt and deficits, coupled with ageing and shrinking populations mean that if these countries are to continue to grow, they will have to export more and more. It does not look like they are developing the capacity to do that.
Two-tier Europe (revised)
At first glance, the chart confirms stereotypes about a two-tier Europe, with a Germanic core booming ahead and a PIGS-Mediterranean periphery lagging behind. However, not only does Norway throw up a surprise, so too does Ireland – at the other end. Ireland’s volume of exports is projected to grow 132% between 2000 and 2016, below only Germany (137%) and even then only marginally so. Its export volumes are projected to grow by an average of 3.5% a year from 2008 to 2016, among the highest in Europe. This is being driven by an impressive performance in services exports. Indeed, Ireland may become the first major economy where half of all exports are from services, the growth area for developed country trade. This very real difference in economic performance further underscores the gap between Ireland and other troubled European economies, a difference that will hopefully translate into real economic growth for the Irish economy in the years ahead.
Squaring the circle of restoring growth in countries with both high debt and ageing and shrinking populations requires international trade. The worrying thing for Europe, though, is that the trend is going the other way: growth in exports is slowing down. Governments cannot create trade. They can, however, put in place the conditions for international trade to flourish. In the end, after all the talk about debt, PIGS, the euro and the banks, future prosperity may ultimately come down to whether Governments can do just that.