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  • IMF Lowering Expectations for Growth in China

    The IMF released its economic outlook for China this morning, and the big takeaway is that IMF economists have lowered their expectations for economic growth. The Chinese economy has, once again, shown its resilience in the midst of a difficult external environment, buoyed by robust corporate profitability and rising household incomes. However, net exports will prove to be a significant drag on growth in the coming two years, with the current account surplus remaining at 3–4 percent of GDP. As a result, growth is expected to fall to 81⁄4 percent this year (from 9.2 percent in 2011), gathering speed in the latter part of this year and rising to 83⁄4 percent in 2013. Here is a look at the IMF's GDP growth projections for China this year: And here is one look at the importance of exports to China's economy: While China weathered the Global Economic Recession of 2008-2009 relatively well, the big concern is that Europe's economic woes will hit China harder this time around. Read the IMF's China Economic Outlook here . (Hat tip Reuters )

  • Facebook Focuses on China for Future Growth

    In case anyone was still wondering about Facebook's financial strength, last week's filing with the SEC in advance of the company's IPO revealed some staggering figures. Here, from Statista , is a look at the company's revenue and net income over the last five years: The SEC filing also reveals some of Facebook's plans for future growth . And China is a big part of the future of Facebook. Mark Zuckerberg and Facebook COO Sheryl Sandberg discussed Facebook's China goals with Charlie Rose back in November. Here is an excerpt from that interview: Watch the full interview here .

  • The Economist's Wooldridge on State Capitalism

    For Adrian Wooldridge , management editor at The Economist , the top economic story of the early 21st Century is that of liberal capitalism "in crisis," and the emergence of a new model of capitalism in emerging economies. Wooldridge calls this new model "state capitalism." This is not, he points out, a return to the "bureaucratic" capitalism common in developed economies before the 1970s. Rather, today's state capitalism is more of a hybrid model, where there are strong state controls but also great appreciation for market forces. Wooldridge, better known to some of us as The Economist 's Schumpeter columnist, discusses state capitalism here: Read The Economist's special report on "state capitalism's global reach" here .

  • Jim O'Neill on BRIC Nations, 'Emerging Economies' no Longer

    In his book, The Growth Map: Economic Opportunity in the BRICs and Beyond , Jim O'Neill argues that the term emerging markets no longer applies to the BRIC nations (and a few others, including Mexico and Korea). While he has long been bullish on the economies of Brazil, India, and China, O'Neil--chairman of Goldman Sachs Asset Management--has come to realize that, in many ways, these economies have earned a little more respect as strong, stable markets. He spoke recently with Charlie Rose about the strength of the BRIC economies, and how we all need to stop regarding "growth markets" as "developing." Here is an excerpt: Watch the full interview here .

  • Brookings Global MetroMonitor: Metro Areas Continue to Drive Growth Worldwide, But Fastest Growth is in Emerging Economies

    The Brookings Institution 's Global MetroMonitor for 2011 paints a picture of shifting strength from cities in the developed nations to Asia and South America. Not that the metro areas of the US and Western Europe are not still vital drivers of the global economy, but the growth was elsewhere in between 2010 and 2011. Note where much of the blue is on this map: The map is a helpful supplement to the report (click here to access the interactive map). As it shows, most of the strongest performing metro areas--90%, in fact--are outside of the US and Western Europe, while almost all of the weakest are in Japan, the US, and Western Europe. Alan Berube , director of research for the Brookings Metropolitan Policy Program and one of the authors of the report, notes some of the key takeaways from the Global MetroMonitor in this video: Read the full report here .

  • Over Half of Skyscrapers Under Construction Globally are in China

    Take a look at this figure from Barclays Capital : A sign of progress? Sure. China is rapidly building more skyscrapers because of its recent economic growth. But this could also be a sign of the bad things to come. The Barclays Capital Skyscraper Index has shown "an unhealthy correlation between construction of the next world’s tallest building and an impending financial crisis." With 14 new skyscrapers going up in China, the question we have is whether this portends bad things for China's economy or the global economy as a whole? Hat tip BBC News .

  • Winning the 'Resource Prize' in an Age of Rising Commodity Prices

    In a new report at the McKinsey Quarterly , McKinsey analysts Richard Dobbs , Jeremy Oppenheim , and Fraser Thompson point out that we are in the midst of an historic expansion of middle class consumers globally. They estimate the global middle class will reach 5 billion people by 2030, with China and India leading that growth. This has brought on a significant challenge for economies and for global business: resource costs. While the economic growth of the 20th century was aided by "cheaper natural resources," commodity prices have been high for the start of this century, and are likely to remain so. Dobbs, Oppenheim, and Thompson argue that this problem represents an opportunity to companies that are willing and able to lead a "resource revolution," and take measures to adapt. The chart below shows their estimates of how much value companies can find in adjusting strategies to account for rising costs. They call this the "resource prize": The authors write that the key is to "create cost advantages" and "generate new stresses on the management of risk and regulation" by pursuing the following: Pursue growth opportunities. Helping consumers and companies to use or access resources more efficiently should be very good business in the years ahead. For instance, the fastest-selling elevator line in Otis’s 150-year history is the Gen2, which uses up to 75 percent less energy than conventional elevators. Major companies, such as General Electric and Siemens, are building resource productivity businesses by investing heavily in emerging clean-energy and clean-water opportunities ranging from wind turbines to industrial-energy efficiency. And in technology centers such as Silicon Valley, a broad range of clean-tech investors and entrepreneurs seek profits by revolutionizing resource productivity. In fact, venture capitalist Vinod Khosla predicted in a recent paper that positive “Black Swans” will “completely upend assumptions in oil, electricity, materials, storage, agriculture, and the like.” Boost internal efficiency. Companies have large, profitable opportunities to improve the efficiency of their resource use across the value chain. Consumer-packaged-goods manufacturers have cut their energy costs by up to 50 percent by pulling productivity levers that pay back their costs in less than three years. Wal-Mart Stores has implemented a sourcing strategy that aims to reduce supplier packaging from 2008 levels by 5 percent no later than 2013, for estimated direct savings of $3.4 billion.7 Capturing many of these supply chain opportunities will require much closer collaboration between upstream and downstream players. Manage risk. As resource inputs to production processes become increasingly scarce, companies need to develop a more sophisticated understanding of their exposure to different natural resources, including supply chain dependencies and regulatory risks. Steel, for example, is becoming ever more critical in the oil-and-gas sector because of the shift to offshore deepwater drilling. Steel production depends crucially on the supply of iron ore, which in turn relies heavily on the water used to extract it. Almost 40 percent of iron ore mines are in areas with moderate to high water scarcity, and a lot of steel is produced in places where water is relatively scarce. Read Mobilizing for a resource revolution here .

  • Potential Advantages of a Global Trade Pact

    In a new Economic Letter for the Federal Reserve Bank of San Francisco , Carolyn Evans shares this diagram representing a series of trade agreements among various countries: This "spaghetti bowl" shows the complexity in managing global trade policy through a series of partner-to-partner agreements--or Preferential Trade Agreements (PTAs). Evans: This type of proliferation of agreements has been termed a “spaghetti bowl” because there are so many overlapping bilateral arrangements among nations. Such a complex mesh of relationships could have the unintended effects of raising the cost of trade and distorting production patterns across countries. These consequences may emerge from two aspects of a plethora of trade agreements: rules of origin and tariff rates. Rules of origin set out standards determining where a particular product originates. They specify that, in order for a product to be deemed to originate from a certain country, a meaningful portion of that product’s value must come from that country. Rules of origin are put in place to eliminate cheating, whereby one country imports a product from a non-partner country and then re-exports it to the free-trade partner. Satisfying rules-of-origin requirements has become increasingly complex, since production processes now stretch across multiple countries. When an assembling country sources inputs from a number of other countries and then exports the finished product to another final market, it becomes difficult to determine exactly where the product originates. Since each PTA has its own rules of origin for particular parties to the agreement, meeting those requirements may become quite complicated. While global, multi-lateral trade agreements are very difficult to work out, they may be a more efficient way to work out more effective, and efficient global trade. They also, Evans argues, offer "unique economic opportunities over and above what is available via more limited agreements." Read Bilateralism, Multilateralism, and Trade Rules here .

  • The World Economic Forum's Future of Manufacturing Project

    Here is a new video from the World Economic Forum on the future of manufacturing. While it comes across as a bit earnest in parts, we are sharing it here because it does a nice job of explaining how manufacturing--"advanced manufacturing" in particular--drives global economic growth. What is your take? Do policymakers need to work harder to drive advanced manufacturing in their economies? Can developed economies like the US compete with the new manufacturing juggernauts like Brazil and China?

  • Stephen Roach: 'Odds of a hard landing in China and India remain low'

    We find it hard to talk about China without talking about India. Sometimes, for the sake of economic comparison, we pit the two against each other. Other times we pit the two, often along with South American kindred spirit Brazil, against the developed economies of the West. india and China seemed to zag while the rest of the world zigged during the global economic crisis, and were able to grow while the US, China, and Europe stagnated. But as 2011 ends, the two growing powerhouse economies are showing some vulnerability. At Project Syndicate , Stephen Roach warns us not to carried away by concerns that China and India will struggle in the coming year. He is a little worried about India's ability to avert crisis. As for China, Roach says not to expect a "hard landing," as China's policymakers have taken necessary action to ward off any major downfall: That is particularly evident in Chinese officials’ successful campaign against inflation. Administrative measures in the agricultural sector, aimed at alleviating supply bottlenecks for pork, cooking oil, fresh vegetables, and fertilizer, have pushed food-price inflation lower. This is the main reason why the headline consumer inflation rate receded from 6.5% in July 2011 to 4.2% in November. Meanwhile, the People’s Bank of China, which hiked benchmark one-year lending rates five times in the 12 months ending this October, to 6.5%, now has plenty of scope for monetary easing should economic conditions deteriorate. The same is true with mandatory reserves in the banking sector, where the government has already pruned 50 basis points off the record 21.5% required-reserve ratio. Relatively small fiscal deficits – only around 2% of GDP in 2010 – leave China with an added dimension of policy flexibility should circumstances dictate. India, however, "is more problematic," Roach notes: India is more problematic. As the only economy in Asia with a current-account deficit, its external funding problems can hardly be taken lightly. Like China, India’s economic-growth momentum is ebbing. But unlike China, the downshift is more pronounced – GDP growth fell through the 7% threshold in the third calendar-year quarter of 2011, and annual industrial output actually fell by 5.1% in October. But the real problem is that, in contrast to China, Indian authorities have far less policy leeway. For starters, the rupee is in near free-fall. That means that the Reserve Bank of India – which has hiked its benchmark policy rate 13 times since the start of 2010 to deal with a still-serious inflation problem – can ill afford to ease monetary policy. Moreover, an outsize consolidated government budget deficit of around 9% of GDP limits India’s fiscal-policy discretion. Read Why India is Riskier than China here .

  • Business Executives Hopeful, But Levels of Optimism Vary Regionally

    As bleak as things may seem from our vantage point in the US, North American business leaders are trending much more optimistic than their counterparts elsewhere. December responses to the McKinsey Global Survey of Business Executives reveal some sharp regional deviations in expectations, especially in developing powerhouses China and India: From the report: Respondents in the eurozone have become slightly less worried. Even larger shifts have taken place in the views of respondents in developed Asia, far more of whom now expect stability rather than improvement in their nations’ economies over the next six months—though they’re more hopeful about the global economy than they were in September. Among respondents in North America, there has been a marked swing from expecting worse to expecting better. Overall, though, respondents are still far gloomier about their countries’ prospects than they were in June, when nearly half expected their economies to improve in the next six months; now, 29 percent expect improved conditions. Overall, business executives as a whole are expecting corporate profits to rise in the coming months, so the latest survey results paint a generally positive picture for global business. Read the full survey results here .

  • 'Muddling Through' 2012

    At Project Syndicate , Barry Eichengreen gives his take on what is likely to happen in the global economy in the coming year. Eichengreen is neither a doomsayer nor a bright-eyed optimist, and so he may not get a lot of airtime to share his projections. Instead, he tells us to expect the EU, US, and China will all "muddle through," in 2012. While the eurozone is unlikely to collapse in 2012, there will be no definitive answer to the question of whether the euro will survive, because there will be no quantum leap in European integration. Treaty revisions take time to draft – and more time to ratify. Efforts to strengthen Europe’s fiscal rules, for example, will take the form of bilateral agreements between governments, rather than changes in the European Union’s Lisbon Treaty. It is a sad state of affairs when a recession qualifies as muddling through. But such is the European condition. Consider next the United States. While recent data suggest that the economy is doing better – all signs are that GDP will have expanded at a 3% annual rate in the fourth quarter of 2011 – it is important not get carried away. Fiscal support for the expansion will continue to be withdrawn. And, while the housing market shows some signs of stabilizing, prices will remain weighed down by the large shadow inventory of homes in foreclosure and held by banks. These considerations suggest that the acceleration of US growth that began in the third quarter of 2011 is unlikely to be sustained. At the same time, if growth slows significantly, the US Federal Reserve will undoubtedly respond with another round of quantitative easing – QE3 by another name. Thus, while growth next year is likely to fall well short of 3%, the US should be able to avoid a double-dip recession. Finally, China should grow by 7.5-8% in 2012. This is muddling through, Chinese style –considerably slower growth than the double-digit rates of the past, but not the hard landing that purveyors of doom and gloom warn is inevitable. Read Disaster Can Wait here .

  • Niall Ferguson on Hopes for Manufacturing Rebound in US

    With wages in the US and the possibility of more dollar depreciation, there is some reason to think that manufacturing here could gain and become more competitive globally, Niall Ferguson says. However, he argues that any gains are short term, unless the US is able to foster a more competitive business climate nationally. And that, in part, means cleaning up laws for conducting business and making them more transparent from state to state: For more from Ferguson, listen to him discuss the overall decline of the West with On Point 's Tom Ashbrook , here .

  • What Bad Manufacturing Data in China, Europe Spells for Global Economy

    Is it possible that manufacturing data in the US is running counter to the rest of the world's major economies, and it is in the US that we are seeing positive data? Well, manufacturing activity is down in China. And it is down in Europe and much of Asia as well. In this Wall Street Journal video, Dow Jones editors Nick Hastings and Martin Essex discuss the potential impact the bad manufacturing data will have on the global economy:

  • India's GDP Rose 'Only' 6.9% in Third Quarter

    Bloomberg 's Kartik Goyal reports that India's economy grew 6.9% in the third quarter of 2011. While that number looks great from the US, it is the lowest level of growth since the second quarter of 2009. Inflation and exposure to Europe's economic woes are leading causes for the lower expansion rate, but India is certainly not alone feeling the effects of global slowdown. Goyal writes: While India’s growth is still the fastest after China among major economies, expansion in BRIC nations is starting to falter as demand from Europe wanes. China’s economy grew 9.1 percent in the third quarter from a year earlier, the least since 2009. Manufacturing in India grew 2.7 percent in the three months through September from a year earlier, slower than the 7.2 percent gain in the previous quarter, today’s report showed. Mining fell 2.9 percent, farm output rose 3.2 percent and construction grew 4.3 percent. Investment by companies and the government declined 0.6 percent in the three months ended Sept. 30 from a year earlier after a 7.9 percent gain in the previous three months, according to the report. “The slippage in investment that we are seeing doesn’t jeopardize the medium-to-long term story at all,” Kaushik Basu, chief economic adviser in India’s finance ministry, told reporters in New Delhi today. He expects India’s economy to expand about 7.5 percent in the year ending March 31. Read India’s Economy Expands Least Since 2009 as Fastest BRIC Inflation Bites here .
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