Published in The Dominion Post (Wellington), 13 July 2012
THE WORLD economy is in crisis – at least that’s the impression you get from the business news. Europe’s monetary union is falling apart. The United States and Japan are presiding over the largest peace-time debts in history. And the global financial system has never looked shakier than today.
News themes like these underline the impression that the global economy is a dangerous place. They may also explain why many New Zealanders are inherently reluctant to engage the rest of the world.
Instead of interacting across borders, why can’t we withdraw and enjoy the safety of home? Why risk becoming ‘‘tenants in our own country’’ for dubious benefits derived from foreign direct investment?
What is missing from this picture is the positive news coming out of the world economy on a daily basis. You just need to know where to look.
According to Conference Board, a business research group, the world gross domestic product will grow by 3.5 per cent this year – not bad for a global economy in crisis. However, only a fifth of this growth will be generated in developed economies, which are growing by only 1.3 per cent on average. The real drivers of global economic growth are elsewhere.
China and India come to mind first, and at forecast growth rates of 8.0 and 6.9 per cent respectively they are indeed the two main drivers of growth.
Other developing Asian economies are not far behind at a growth rate of 5.0 per cent. Asia will account for more than half of the growth in the world economy this year. Latin America does not quite keep pace but at 4 per cent it is still growing at three times the speed of developed economies.
Maybe more surprisingly to many, Africa – the supposed crisis continent par excellence – is expected to grow by 4.8 per cent this year.
The stark differences of growth between developed and developing economies will change the world economy in the 21st century.
Once upon a time, New Zealand and Australia may have been isolated outposts of the Western world in a poor neighbourhood. Now we are between two of the fastest-growing regions of the planet. No other developed nation is facing such a prospect. The only question is whether we are aware of it.
New Zealanders hardly need to be told about the rise of Asia. A story less understood in this part of the world is the emergence of South America as an important economic player.
If South America excites the imagination of Kiwis, then it is probably still as a holiday destination, not as a business partner. But the dramatic change of economic fortunes the continent has experienced over the past decade should trigger a rethink.
Countries like Brazil, Peru and Chile have been stabilising, and growing off the back of resource endowments. In its most recent world economic outlook, the International Monetary Fund entitled the chapter on the Latin America On a Glide Path to Steady Growth. For a dour bureaucratic organisation this is wildly optimistic language. It nicely sums up progress in the region.
The figures coming out of South America are impressive. At 5.7 per cent, Brazilian unemployment is a percentage point lower than New Zealand’s. Chile’s minuscule public debt is 9.2 per cent of GDP – not even a third of New Zealand’s. While New Zealand is running substantial deficits, Chile recorded a surplus last year.
According to the Organisation for Economic Co-operation and Development’s foreign direct investment regulatory restrictiveness rankings, Peru, Brazil, Chile and Argentina are now all classified as more open to foreign investment than supposedly liberal New Zealand.
And in 2010 Chile became the first South American country to join the OECD, the exclusive club of the world’s most developed economies.
In New Zealand we are wondering whether a few farms bought by the Chinese are a problem, or whether we should be concerned about shares in soon to be part-privatised energy companies ending up in the portfolios of foreigners. These are precisely the wrong issues to worry about.
What New Zealanders really need to think about is: how can we ensure we keep up with the growth on both sides of the Pacific? Being fortuitously placed between Asia and Latin America does not make us rich.
We need to engage more with both regions. Being open to trade and investment is a prerequisite for that.
Even in a world economy that looks fragile, there are opportunities.