As earnings season approaches, the debate on Wall Street is reaching a crescendo. Was the drama of last year a mere blip in a larger bull market, or is the run-up from March through September a sucker’s rally within a new, secular bear?
While the answer to this question is important for all business worldwide, there is one corner of the globe that isn’t as concerned with the conclusion. In both China and India – along with other developing markets – the recession hasn’t hurt GDP growth, despite falling exports. China’s GDP is expanding at a 7.9% clip, according to the latest numbers, and India’s GDP is right behind, at 6.1%.
“We have reached a tipping point in global economic affairs,” Stephen King, the chief economist at HSBC, told London’s The Guardian. “While there are some encouraging signs of recovery in the developed world, the real economic action is taking place elsewhere.”
According to a recent study released by the World Bank, the economic crisis of 2008 has only hastened the shift of power from west to east. No longer will America be the sole engine of growth and spending – and no longer will the dollar be the world’s de facto reserve currency.
John Hawksworth, head of macro-economics at PriceWaterhouseCoopers, spoke to The Guardian on this subject: “The dollar, the euro and the renminbi will form a basket of currencies. The world will be different. The recession has accelerated that process.”
When speaking to the paper, Robert Zoellick, head of the World Bank, said, “There will certainly be a larger role for emerging powers, there will be multipolar sources of growth, there will be more south-south trade among developing countries.”
Indeed, according to the World Bank, regardless of how soon developed countries exit the recession, the majority of economic growth for the foreseeable future will come from the developing world – and not just the famous BRIC nations. South America, Africa, and smaller Asian nations are expected to contribute nearly as much to growth.
Perhaps the greatest representation of this shift is the recent demotion of the G-7 as the world’s economic governing body, in favor of the G-20 – a body that includes emerging markets like the BRIC nations. An economic forum without China and India no longer seemed reasonable.
In a surprise move, at the summit in Pittsburgh two weeks ago, the G-20 moved close to passing new rules, expanding the voting powers of emerging markets at the International Monetary Fund.
Meanwhile, one of the biggest topics of debate in Asia isn’t when the “worldwide” recession will end, but rather which economy will emerge strongest, China or India. The argument goes, while China has outpaced India for years, the Middle Kingdom is more dependent upon exports and imports – about 80% of China’s GDP is tied up in world trade. India, by contrast, has around half of GDP coming from intranational trade, and thus is less affected by the economies of the west.
As soon as 2010, India’s growth rate may pass China.
Even with their extraordinary growth, neither India’s nor China’s economy will approach the size of America for many years to come. Both countries, however, will continue to play increasingly large roles in economic policy, and the economic health of the world.
Whether the recession ends tomorrow, in two years, or ended already – the macro-economic view shows India and China taking over as the economic engines of the world.
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