“The fundamentals [point to] a prolonged period of slow growth in Europe. We’re not going to return to high growth in the US,” said David Rhodes, chairman of global practices, in an interview with the Jakarta Globe last week.
The International Monetary Fund last week raised its forecasts on global economic growth, citing an improvement in financial conditions worldwide and easing concerns about the debt crisis in the euro zone. It predicts the world economy expanding 3.5 percent this year, up from a previous 3.3 percent estimate. Next year’s growth is predicted at 4.1 percent, compared to an earlier forecast of 4.0 percent.
Rhodes, though, dismissed the latest prognostications, saying that the IMF has been inconsistent in its forecasts and since the time of the 2008 crisis its economists have been changing their estimates, “so they’re better off as historians.”
In Europe, he said, some countries face high levels of debt and are not competitive because the use of the euro as a single currency has a knock-on effect on the balance of trade that makes them become net exporters, which is unrealistic.
International investors were worried last week that Spain might be the latest European nation to require a financial bailout as its borrowing costs rose. But favorable demand for its bond auctions helped to alleviate those concerns.
In the United States, economic indicators on a monthly basis suggest improvement but in reality are distorted, Rhodes said.
“Retail sales are back at the level they were in 2007, so in five years we’ve stood still,” said London-based Rhodes, who focuses on issues involving major strategy and organizational change. The same case applies to data on sales of cars and homes, he said.
The US unemployment rate has fallen to a three-year low at 8.2 percent in March partly due to some Americans who have been out of the workforce for a long time and have stopped looking for jobs.
Emerging from the recession is taking twice as long as historical norms, said Rhodes, a co-author of “Accelerating Out of the Great Recession: How to Win in a Slow-Growth Economy.”
“We’re in a very different world this time. History would say we should be back to where we started, but we’re nowhere near,” he said.
As growth slows in Europe and the United States, he said, the focus is on Asia, and Southeast Asia in particular.
In 2000, “old world” economies, including the United States, Japan, Europe and Canada, contributed 70 percent of global gross domestic product, he said, and last year they accounted for 58 percent.
“There’s a seismic shift occurring, and it’s occurring faster than ever,” Rhodes said. “It’s not because Asia, South America and Africa are growing fast, but because Europe and America are treading water.”
“But the thing to be careful about is that around 80 percent of all trade still touches the old world. So, the old world still matters.”
Developed nations are trying to grow their economies by breaking into emerging markets, he said, as exemplified by British Prime Minister David Cameron traveling to Indonesia and other parts of Asia to secure trade recently.
“Your home markets are still big, but they’re not growing,” Rhodes said.
“People are now fighting for these new markets. There has been and there will be increasing attention on new markets because in the old markets things are flat and it’s much harder to gain share — that’s a tough battle — than to move into growing markets. It’s much nicer to grow with a market.”
Tariffs within the Association of Southeast Asian Nations will disappear, and that will make trade more competitive globally, Rhodes said. Asean’s combined population of 600 million is almost three times that of Brazil, twice that of Russia and half that of either India or China, he said.
“Asean has been something of Asia’s best-kept secret,” he said. “People, they think less of Asean and more of Indonesia, which if you’re Indonesian is a good thing.”
Indonesia’s economy, the biggest in Southeast Asia, last year grew 6.5 percent, the fastest pace since 1996. That has helped to boost average per capita income to $3,500 from $3,000 in 2010.
In Indonesia, “public finances are in good shape,” Rhodes said.
“The economy is growing robustly on the back of domestic demand, the young population aspiring for a better life. These are very positive steps.
“But it has the same problem India’s got — the infrastructure sucks. At some point that’s a disadvantage.”
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