In pursuit, globally, of the elusive soft-landing
The new year’s worldwide economic downturn has an interlocking effect: every national economy is searching to accommodate itself politically as well as economically to what looks to be an extended period of low growth. After longer or shorter periods of historically unrivaled prosperity, they are feeling for a “bottom” — a level to wait out new growth. That is the proverbial “soft landing”.
Last to go through the motions are the BRIC — Brazil, Russia, India and China. Some had hoped they would be immune to the U.S. and Europe blight because of their developing domestic markets. That’s turning out to be a foolish miscalculation. All, to a greater or lesser extent, were dependent on exports. With Western consumers’ incomes dropping [including a plateau in Japan], markets are drying up with the added irritant of new low-cost competitors.
China is, of course, the most critical since “the factory of the world” has accounted for recent commodities growth. Brazil, luxuriating with a new middle class and developing internal market, nevertheless will feel China’s downturn coupled with its own bubble, an inflated currency discouraging exports and encouraging capital flight. [Ask the Miami real estate agents about their best customers.] Australia, which offshored manufacturing decades ago, first to Japan, and then China, sees ore prices dropping with oil and gas exports soon to suffer. Russia’s high-cost oil and gas sales are Moscow’s only crutch, now threatened when worldwide consumption falls dramatically. [Ironically, Tehran’s threatened Hormuz Strait closing — the mullahs’ way of boosting oil prices — is a boon.]
Chinese official figures, always dubious, indicate growth moving down toward 8 percent annually — a rate convention says is minimal to absorb population growth and sustain a politically potent urban elite. The question, of course, is whether that is the end of the slide. Unanticipated events surely await a jerrybuilt economic structure, already signaled by growing unemployment and strikes — often against foreign multinational assemblers under pressure to trim China costs even more.
Communist leaders promise a turn from unrestricted government-backed infrastructure expansion and subsidized exports to domestic consumption. So far it has been just talk. Having starved the rural sector for more than two decades — after an initial agricultural liberalization spurt — Beijing has little leeway. The $4 trillion “stimulus” to meet the 2008-09 worldwide financial crisis went disproportionately to Goliath inefficient government corporations, and bank credit is now stretched particularly at local levels.
India, long seen as Beijing’s limping development rival with its 1.3 billion soon to pass China as the world’s largest and younger population, has also snagged. Monumental corruption scandals involving New Delhi’s morass of British colonial and Nehru era Soviet-style bureaucracy has halted economic liberalization. Indian family capitalists are turning to overseas investment, and new government programs to remedy horrendous inequalities will only add to inflation Prime Minister Manmohan Singh’s exhausted government has failed to contain. India’s soaring trade with China — raw materials exchanged for cheap imports — will feel Chinese cutbacks and Indian manufacturers already call for protection. All of this, of course, backgrounded by continuing tension along the 2,000-mile Tibetan border and Chinese expansion of commercial and possible military footholds around the Indian Ocean which New Delhi would like to call its own.
All this plays out against the chaotic Eurozone with its 17 members unable to find a quick solution to the dilemma posed by Germany’s still relatively robust — if export-led — economy and its defaulting southern members. They are increasingly overwhelmed by debt and unemployment as the proposed remedy, austerity, kicks in. Reduced consumption in the world’s largest market will increasingly ripple through export income for the rest of the world. And if European banks, overleveraged with public as well as private debt, cannot be quickly recapitalized, there is danger of another financial crisis to which the U.S. would not be immune.
An anti-business administration in Washington still refuses to end its environmental war crippling American energy and gorging already bloated Persian Gulf tribal hoards. U.S growth, produced through continuing growing public debt, is feeble with vast structural changes as well as lack of business confidence feeding unemployment, sapping consumer confidence, the wellspring of world growth. So far the U.S.’ economy’s vast dimensions — including unbelievable fat and waste — have braked the downturn. But rising U.S. exports, based on a devaluing dollar, will feel the EU and BRIC fallback, pointing toward a Washington search, too, for a “soft landing”.