Every so often institutions all over the world that engage in forecasting the growth performance of various economies tend to revise those projections as often as is feasible to reflect changing realities within a country’s own domestic economic space as well as to incorporate developments taking place at the regional and international levels.
Thus, for example, the International Monetary Fund from time to time would alter its growth predictions for the global economy mostly on account of the changing fortunes in some of the world’s leading economies such as the United States and China.
These constant changes in growth predictions do not only suggest the difficulties associated with forecasting macroeconomic variables in general but perhaps more importantly they reflect the dynamic nature of economic growth. To begin with, even at the empirical level many applied economists have tremendous difficulties in identifying the precise sources of growth for economies – large and small. Hence, there is no consensus in the economics literature when it comes to the issue of the drivers of economic growth. But this difficulty is only the tip of the iceberg.
In reality, even if economists are able to determine with a high degree of certainty the sources of economic growth within any country, the real challenge becomes one of maintaining reasonable rates of growth over a sufficiently long period. This concern speaks directly to the degree of dynamism that exists when it comes to the question of economic growth. In short, changes in business environments internally and externally do have significant implications for a country’s growth performance and hence alterations in policies and strategies have to be done on a continuous basis in order for a country to continue to sustain its growth levels.
The recent growth performance of China comes immediately to mind as a benign case to illustrate the dynamic nature of economic growth and the kind of necessary interventions required to steady the ship of state. In the third quarter of 2014, China’s economy grew by 7.3 per cent – the lowest rate of growth recorded in five years. It is no secret that most of China’s incredible growth performances in the past few years have been driven by strong investments and exports.
Given the unpredictable nature of the global economy it is highly unlikely that China could continue to rely so heavily on external factors to drive local growth. It is therefore not surprising to learn of a report that the government is now looking at ways to reconfigure the economy to make domestic consumption the major source of economic growth. If that happens, it would represent a major shift in economic strategy by the government but it is a change of course that is certainly consistent with the times.
As simple as this case may seem, it hits home directly to our realities here in the Caribbean and that is why I have highlighted this scenario. For example, many of our top-performing economies have relied on tourism as the main engine of economic growth for several years. Can we continue along that path? Should we continue in that vein? The answers to these questions must only be determined after a meticulous examination of the dynamics involved in this important industry and a determination is made as to the way forward.
If, in the process, we realise that a change of course is necessary, then, like China, we should do so with boldness and with a deep sense of urgency.