Opinion & Analysis
OPINION: Greece. DO you remember how close it came to plunging the world into an economic maelstrom?
If the Greeks hadn't voted in favour of austerity then the euro zone would have split asunder and the world economy lurched into a prolonged recession. I can recall writing a breathless piece myself, implying economic doom was nigh if those ungrateful Greeks didn't do the right thing.
Ironically, the IMF has just admitted it went way too far with its austerity. Sorry about that, Greece.
This year has been Cyprus's turn. Its debt problems were insurmountable and therefore it would inevitably be forced out of the euro zone. This would produce a contagion effect for the rest of Europe and before you know it, global ruin.
In the past few weeks Slovenia has turned up as yet another possible cause of economic disaster. Can it avoid a bailout? Will it be the next domino that pushes the world over the abyss? It's never-ending, isn't it, this wretched global recession?
Or is it?
Have a look at this recent headline: "OECD Cuts World Economic Growth Forecast to 3.1 per cent." Now I am sure some of you are thinking that this can't be right. The world economy is in recession, therefore it can't be growing at all. And you would have every reason to think so, if you absorbed all the hysterical coverage Europe has generated over the past few years.
Europe is in recession, but the world is not. Far from it.
While we were stressing about that economic giant Cyprus, population 1.1 million, a much larger country north of New Zealand has been growing faster than China.
The Philippines, population 94 million has just announced annual GDP growth of 7.8 per cent. Myanmar, or Burma, population 48 million, has notched up growth of 6.3 per cent, and the consultants McKinsey predict it will quadruple the size of its economy over the next 20 years.
I could go on about Indonesia, population 242 million and its growth rate of 6 per cent, or Cambodia, with its 14 million and 6.5 per cent growth rate. But the point is, New Zealand, like most Western countries, is very euro-centric. If Greece, population 11 million, is in trouble, then it means the world economy is doomed. If it's an Asian country, other than China, then we are not remotely interested.
The problem with the over-emphasis of things European and the lack of interest in things Asian, is we create a distorted view of the world economy.
We assume because Europe is struggling - and the biggest economy of them all, America, is growing very slowly - then overall the world economy must be in deep trouble. And there is no denying the post GFC environment is still fraught with danger. But through all this angst the world economy has been growing solidly since its nadir in 2009.
Depending on which international agency you refer to those global growth rates have been around 5 per cent for 2010, 4 per cent in 2011 and 3.5 per cent in 2012. An unspectacular pace, and one which is trending down, but aren't such growth rates quite respectable under the circumstances?
The reason the world economy has kept ticking over is primarily because of those Asian economies mentioned. And, of course, China. Fortunately the Middle Kingdom does get the attention it deserves. After all, it is our largest export destination now. However, I maintain the analysis of China is a little skew-whiff at times and persistently negative.
The constant message we get about China is that it is slowing down and this is a very bad thing. Certainly slower growth in China is having a global impact. But I consider it is overstated because there is insufficient understanding that because China is now such a large economy, a 7 per cent growth rate is perfectly reasonable and desirable.
A simple bit of maths can show this. An economy that grows 10 per cent a year doubles in size every seven years. So if we give the Chinese economy a value of 100 in 1998 it will grow to a value of 200 in 2005 and 400 in 2012. A 10 per cent growth rate in 1998 means China grew 10 points that year and in 2005 by 20 points. A slower 7 per cent rise in 2013, when the economy is now worth 400, will mean growth of 28 points . . . still well in excess of the levels of 1998 and 2005.
For family reasons I have been to China regularly over the past 15 years. My impression is it cannot keep growing at 10 per cent and it is highly desirable that it aims for 7 per cent or even less so it can ease back on its congestion and pollution problems. And, as that little bit of maths above shows, a 7 per cent growth rate for such a large economy is still highly respectable.
The other factor to consider is China will benefit from the growth of the Southeast Asian countries mentioned. The region is likely to be a dynamic one for many years to come. So remember, despite the insistence of Travolta and Newton-John, Greece does not need to be The Word. Try Philippines or Indonesia for a change.
Michael Wilson is TV3 business correspondent for Firstline and 3News@12. Rod Oram is on leave until August.
- Sunday Star Times