5 Economies and How They Can Help Make the Global Recovery Last
As the picture for the global economy continues to look brighter in the short term, long-term prospects are still in question. Growth has proven resilient in the face of policymakers who are often not doing what it takes to get their economies moving again.
The exit of recession in Europe, while good, is still not a robust recovery; China’s reform efforts are slow, and its economy is suffering because of it; and even Japan has slowed in changing the dynamics of its marketplace so that it might exit recession. All this combined makes for a dubious picture where really only the United States seems to be healing and growing on a reliable basis — though certainly not fast enough if it is to carry the global economy on its shoulders.
With that in mind, here’s a look at what some of the world’s major economies can do to foster growth.
Reform is at the crux of China’s efforts to become a more diverse, sustainable, and market-oriented global economy. For years, exports and foreign investment in China have propelled the country on an upward trajectory that was long fueled by central stimulus.
However, in the face of global demand that cannot keep pace with that sort of growth, China has tapered its efforts and started implementing market policies designed to make its economy more dynamic, specifically by way of lifting up Chinese entrepreneurs and consumers.
Yet one reform in China is often not as effective without other accompanying reform, and the slow pace of change has also tapered the country’s expansion. With considerations like deposit rate liberalization and calls to change China’s social benefits structure, there is still plenty of work to be done for China to continue to lead in coming years.
Japan has long been an oddity in the global economy — it is one of the world’s great innovators and market powers, and yet one of the world’s most indebted and stagnant economies, as well. Deflation has plagued the island nation for years, and Prime Minister Shinzo Abe’s efforts this year to shock the economy back into growth and inflation have yielded some positive results.
While the Bank of Japan oversaw a massive injection of currency into the Japanese market, despite soaring stocks, growth has slowed as the year has progressed, highlighting the need for new steps. Japan’s 3.8 percent and 2.6 percent growth in the first two quarters of the year, respectively, are certainly positive numbers, but Abe has yet to roll out the rest of his plans that include a sales tax and deregulating much of the economy, measures that could shore up the government’s budget and make Japan even more competitive.
Looking now at a few European economies, the problems do not only lie in the weaker parts of the European Union — though Greece’s mess will certainly have to get resolved if Europe is going to be a contributor rather than a drag on global expansion.
France also has to pull its own weight. The economy there can’t seem to lift itself out of the doldrums: unemployment is at a record high, business conditions are weak, and industrial output recently gave back the gains it made earlier in the summer.
Business owners complain of high taxes, restrictive labor policies, and a general climate of non-competitiveness that is said to be dragging the country in the wrong direction. When President Francois Hollande travels the country touting a recovery, his abysmal approval ratings are easy to understand.
Basically, Greece needs to find the political will to fundamentally redesign its economy. Life support from its so-called troika of lenders has left the country subject to the regulators’ wills, and yet even with their control over Greece’s fiscal future, the country has been painfully slow to change.
Protests, politics, and power struggles all mark the barriers Greece is facing, but with its ineptitude to collect tax revenue and failure to encourage firms to grow, astronomical unemployment continues to burden the country.
Moreover, the state’s apparatus is unsupportable given the scope of Greece’s fiscal abilities. Movements the EU, European Central Bank, and International Monetary Fund have pushed toward for privatization and a smaller public work force will have to continue if Greece is going to find a competitive niche in the world market.
5. United States
While arguably the most promising of all countries on this list at this time, there is no shortage of work that needs to be done to ramp up economic expansion and provide a bulwark of growth from which the rest of the world can build. Unemployment is continuing to fall, however slowly, and the stock market continues to perform well this year as America’s recovery marches onward.
Yet this market is leaning on quantitative easing provided by the Federal Reserve, and that will prove problematic as the central bank ends that program and forces markets to return to a more organic state. A study by the Federal Reserve Bank of San Francisco shows that tax increases have hampered the economy’s ability to grow faster, though there recently has been talk of a corporate tax cut.
Negotiations with the EU over a large free-trade agreement also provide an avenue to unlock growth on both sides of the Atlantic, as lower tariffs and more streamlined regulatory processes will make it easier for firms to compete and expand.