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  • BALANCE, HARMONY AND SUSTAINABILITY IN UNCERTAINTIES: TRENDS OF DEVELOPMENT OF GLOBAL ECONOMY IN THE POST-CRISIS ERA

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    Balance, harmony and sustainability in uncertainties: Trends of development of global economy in the post-crisis era

     

     
     
    International Trade Forum - Issue 2/2010

    With the prospect of recovery from the global financial crisis, enhanced by stimulatory spending by national governments, there are forces at work that will assist in developing a sustainable recovery, although some lingering risks remain. Emerging markets can play a key role by continuing to strengthen their participation in global trade and investment with parallel measures aimed at stimulating domestic demand.

    Rapid development and exploitation of new technology can be relied on to have a positive influence on economic growth and priority should be given to economic and financial reform to build a more secure platform to support expansion and manage risks.

    A new day dawns - early signs of recovery from the financial crisis

    There is a beautiful poem written by Bai Juyi during the Tang dynasty: 'When spring flowers wither and fall in the early summer wind, you can still find peach blossoms deep in the mountains in a temple's backyard.' The artistic conception of these two lines of poetry exactly describes the current situation at the beginning of this post-crisis era: after three consecutive years of crisis from 2007 to 2009, we finally see the dawn of recovery. Data from the first half of 2010, published recently by international financial organizations, position the major economies just like the peach blossoms, bringing us true feelings of a late spring.

    Although there are still some undisclosed financial risks and problems like the sovereign debt crisis of Greece still await solutions, the financial tsunami has begun to subside. Financial institutions worldwide have survived the earthquake and are making their way to a new phase of growth. The global financial system is back on the track of capacity building, global financial supervision undergoes in-depth evolution and there are small possibilities for another round of systemic financial risk to happen in the near future. The large-scale rescue policies and stimulus plans have helped main economies out of the recession into a new phase of recovery. Economic indicators from the United States of America, the euro zone, the United Kingdom, Japan, India and China show signs of recovery in consumption confidence, domestic and overseas demands, real estate, public investment and manufacturing. According to the latest forecast from the International Monetary Fund (IMF), global economic growth this year is expected to reach 6.3%, up from 2.4% in 2009.

    A spring of recovery brings hope of harvest in autumn. It is time for economies and enterprises to seize opportunities for spring sowing, which means having forward-looking insight into the trends of the post-crisis era. And the key to a long-term sustainable development, as experience shows, is to 'follow the trend with an innovative mind'.

    The path to a sustainable recovery

    Looking to the future, the essential character of the next few years will be 'sustainable recovery'. According to the IMF, the global economy's average annual growth should keep to over 3% from 2010 to 2014.

    Driving forces for sustainable recovery come from the following aspects: first, as financial innovation becomes more prudential and closer to the real needs of solid economic fundamentals, technological innovation of the real economy and global financial deepening will be further activated, providing impetus to the recovery.

    Second, the ongoing rebalance of the global economy will provide momentum to the recovery by optimizing the allocation of global resources. Developed economies will adjust the consumption-driven growth path under high debt levels, while emerging markets will change from being export-oriented to domestic demand-oriented.

    Third, in the post-crisis era, each industry, including the banking world, will enhance inter-industry integrity and intra-industry interactivity. The financial crisis not only breaks the old system, it also creates opportunities for comprehensive management and internationalization. Such globalization at the micro level will provide stimulus to the recovery by accelerating the cross-border flow of essential factors of production.

    Fourth, emerging markets will be further validated as a key engine of global economic growth in the post-crisis era. Since the crisis, at the epicentre of which were the United States and Europe, emerging economies not only made outstanding contributions to the recovery of the global economy, but also exerted far-reaching influence on the structure of the global economy.

    Fifth, the post-crisis era will witness fast development and exploitation of new technology and resources. Such enhancement of total factor productivity worldwide will provide support to the recovery.

    Risks to the recovery

    The post-crisis era is full of opportunities; nevertheless, we still have to consider potential risks.

    First, it will take a long time for global economic resources to be reallocated in a balanced way; therefore, the recovery of the post-crisis era is bound to be very slow.

    Second, because we are still facing problems such as systemic financial risks and sovereign debt default, the actual recovery will be tortuous.

    Third, as different economies and areas will recover at a different pace, the game theory of the structure of global policy will be more complicated.

    Therefore, we need to push forward economic and financial reform post-crisis, so as to control the potential risks. The global economic structure will become more balanced and sustainable after correction, and consistent capacity building will make risks more controllable. Moreover, global financial supervision will become more effective and prudential, and international consultation will be more flexible and coordinated.

    Post-crisis, emerging markets will be further proven to be a key engine of global economic growth. According to IMF statistics, the average annual growth of gross domestic product (GDP) of emerging markets is 4.3%, compared with 2.5% in advanced economies and a global average of 3.2%. Measured with purchasing power parity in 2009, emerging markets account for 52% of global GDP, surpassing advanced economies for the first time. Looking to the future economic cycle, emerging markets should accelerate further and provide an underpinning to global economic growth. Furthermore, emerging markets will also take an essential role in the world economic rebalance.

    In the post-crisis era, emerging markets will reduce dependence upon exports by encouraging domestic investment and consumption, and put emphasis on new and low-carbon industries. All these measures will not only ensure a stable and increasing consumption demand, making up for the gap caused by the shrinking advanced economies, but also help emerging markets to keep sustainable development by changing their growth mode from export-oriented to domestic demand-led.

    The role of SMEs in the recovery

    From the micro perspective, small and medium-sized enterprises (SMEs) will make irreplaceable contributions to economic growth and employment in the aftermath of the crisis. In recent years, more and more economies have taken measures to help SMEs raise funds, since financing problems are universal. Measures include: public financial support; innovation of SME financial services; diversified channels and direct financing; and a multi-level SME credit guarantee system. It is foreseeable that SME financing will have a promising future in the post-crisis era, especially in emerging markets. Therefore, commercial banks will make efforts to promote the cost-accounting capacity of SME financing; optimize tailor-made approval procedures; enhance SME credit risk pricing capacity and develop customized pricing models; provide more consulting and financial services for SMEs; improve loan information systems; and build a proper SME credit-rating system. Different economies will collaborate to build a platform and explore the most effective form of multilateral and bilateral communication and cooperation between SMEs, governments and financial institutions to share experience and best practice of SME financing, mutual learning and pursuit of common benefits.

    In closing, in the post-crisis era, the global economy will witness trends of balance, harmony and sustainability, emerging markets will play an essential role for global economic growth and SMEs will hopefully enter a favourable financing environment, promoting development.