By the time you read this, May 2013
will be history. It seems a good time to take stock
of how the US, the Euro area and China have been
shaping up, and what their growth prospects are.
Let us start with the USA. With a nominal GDP of
US$15.7 trillion in 2012, it accounted for 22 per
cent of global income. In January-March 2013, it
grew by 2.5% — compared to the previous quarter and
annualised. Which was a bit better than the growth
for 2012 as a whole: 2.2 per cent. This isn’t much
to write home about. Yet, it was 0.4 percentage
points better than in 2011.
Moreover, the consensus is that the country will
grow at more or less the same rate in 2013 which, by
the way, is better than the IMF’s predicted growth
of 1.3 per cent for the advanced G7 countries.
Though growth remains modest, there are several
signs of an uptick in the US. The unemployment rate,
which had touched 10 per cent in October 2009 and
remained at 9 per cent or more for 29 out of 36
months between 2009 and 2011, has started steadily
coming down from 2012. In April 2013, it was at 7.5
per cent of the adult workforce.
Equally, there has been a steady growth in housing
starts throughout the US, which has accelerated over
the last 12 months. Add to that a substantial
improvement in the Conference Board’s Consumer
Confidence Index which was up by 7.2 points in May
2013 and ruling at a five-year high.
All said and done, therefore, the US seems to be
well on its way to recovery — aided by the Federal
Reserve’s continued stance of having an easy money
policy. I would be somewhat cautious, but give it a
thumbs up.
Unfortunately, nothing of the sort can be said about
the Euro area, which had a GDP of US$12.2 trillion
in 2012, or 17 per cent of global income. It is in a
right royal mess. In 2012, its GDP shrank by 0.6 per
cent; and in 2013 it is expected to shrink further
by anything between 0.3 and 0.5 per cent.
Consider the big four in the Euro area: France,
Germany, Italy and Spain. France is again in a
recession. Its GDP growth was flat in 2012; and is
expected to shrink by 0.2 per cent in 2013.
Germany’s growth is expected to fall from 0.9 per
cent in 2012 to 0.6 per cent in 2013. Italy
continues to wilt: its GDP contracted by 2.4 per
cent in 2012, and is forecasted to shrink further by
1.5 per cent in 2013.
And Spain is hurting badly. After a fall in GDP of
1.4 per cent in 2012, it is expected to further
reduce by 1.6 per cent in 2013. More than one out of
four are unemployed in Spain — this being one out
three for the younger populace.
Among others in the Euro area, Greece continued to
contract — by 6.4 per cent in 2012 and an expected
4.2 per cent in 2013. As did Portugal: (-) 3.2 per
cent in 2012, which may further reduce by 1.5 per
cent in 2013.
The Euro area is in doldrums — beset by rigid labour
laws, poor productivity, unsustainable deficits and
lack of international competitiveness. It is a ‘two
thumbs down’.
Now for China. In 2012, with a GDP of US$8.2
trillion, it accounted for 11 per cent of global
income. As an aside, India’s GDP was US$1.8
trillion. China grew by 7.8 per cent in 2012 — by
far the best among the large economies. It is
expected to grow by 8 per cent in 2013. Investments
accounted for 47 per cent of GDP in 2012; savings
was 49 per cent; and the current account surplus was
2.6 per cent of GDP. For India, the same three
variables were: 35 per cent, 30 per cent and a
current account deficit of 5 per cent. Need one say
more?
Published: Business World, July 2013
