In its latest projections for the global economy, the World Bank is predicting real economic growth of 3.3 per cent in 2016 and 3.2 per cent in 2017. These forecasts are higher than the 2.8 per cent for 2015. For high income countries, the United States and the Euro area are projected to grow by 2.8 per cent and 1.8 per cent in 2016 and by 2.4 per cent and 1.6 per cent in 2017, all respectively.
For developing countries, China, as expected, leads the way with seven per cent in 2016 and 6.9 per cent in 2017. Other BRIC countries of Brazil, Russia and India are projected to grow in 2016 by 1.1 per cent, 0.7 per cent and 7.9 per cent and in 2017 by two per cent, 2.5 per cent and eight per cent, respectively.
What is particularly amazing about these numbers is that even though most of the countries cited are expected to perform better in the current and next year than they did in 2015, there are growing concerns in those economies about their abilities to sustain higher real economic growth rates in the medium to long term. China presents probably the most worrying case in point. For several years, China’s economy has exceeded all growth projections on an annual basis most on account of strong export performance.
The surge in exports is linked to the undervaluation of the domestic currency, making goods and services from China relatively more internationally competitive than many of its trading partners. But the truth is that the leaders have come to the recognition that the economic model that has served them well over time does have severe limitations and that to continue the spectacular growth performances would require significant shifts in tactics and strategies.
In essence, there is now the need to recalibrate the economic model to shift the emphasis from exports to domestic consumption as the main driver of economic growth. Does that strategy make sense? Of course it does! You see, in a world in which growth is as uncertain as the weather, a country that continues to rely on exports to drive economic activity is simply putting most of its eggs in a basket that is sure to leak severely. Hence, any economic manager who is serious about the future pace and direction of the economy would know that adjustments are necessary if only for sustainability.
Therefore, in order to continue to enjoy the kinds of economic growth rates that China has been experiencing, structural reform is mandatory. The shift in emphasis from exports to personal consumption is a move in the right direction because economic activity will be more largely driven by domestic as opposed to external conditions. And that is precisely what the Chinese have recognised and are making genuine efforts to change.
The problem for China is that over the years it has spent so much in investments that it now has to change laws as it has been doing and construct institutions that will facilitate increased consumption within its domestic economic space. Clearly, the latter will be a huge challenge that would take lots of efforts and years to accomplish. But as the saying goes, it is always better to be late than never.
We in the Caribbean must take a leaf out of China’s economic playbook and begin the process of structural reforms in order to protect the gains we have made. Our continued dependence on some commodities and tourism will never be able to foster an environment of sustained real economic growth.
To prolong real economic growth we must in addition to making changes in the roles of various sectors in the economy also undertake serious reforms in personal cocnsumption patterns, private investment, government spending, exports, imports and aspects on the supply side such as the cost of production and the ease of doing business. Only then can we begin to talk seriously about reconfiguring our economies to make them more resilient to change and external shocks in a sustained manner!
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