trade

The World Economic Forum, billed as the largest-ever brainstorming on the global agenda, drew about 700 people to Dubai in early November. Image credit: worldeconomicforum at Flickr under a Creative Commons license.

Seven hundred self-styled “smart people” got together in Dubai on Nov. 7-9 under the auspices of the World Economic Forum for what was billed as the largest-ever brainstorming on the global agenda -- that is, the priorities for global action. The event had been planned for a long time, but the deepening global financial and economic crisis naturally colored the discussions. I was part of the trade facilitation group -- under Harvard professor Robert Lawrence -- which worked closely with the trade policy group under Ernesto Zedillo, director of Yale University’s Center for the Study of Globalization. The most fun was the unstructured morning in which we could interact as we chose with any of the 66 other groups. I spent time with the groups working on the future of China, climate change, and growth and development. The official summary is on the WEF website, but I took away three main points from the interesting weekend.

It is striking how well the global trade system is working, even as the global financial system spirals into crisis. This is not to say that global trade is immune from the crisis, far from it. Trade finance has contracted sharply and the World Bank projects that total global trade in 2009 will decline for the first time since 1982. But what is striking is that global trade has a well-defined set of rules and an institution (the World Trade Organization) to oversee them. Global finance, on the other hand, does not have a well-defined set of rules and regulations. Until now, the system of global trade continued to work well.

China’s growth has held up well so far in 2008 (take a look at the Bank's Quarterly Update  for more details).  Growth rate for the first half was slightly over 10%.  Recently there has been concern about the slowdown in the growth of exports: from 28% year-on-year increase in May to 18% in June.  But monthly figures are erratic, and I am more impressed that the growth of exports for the first half was at a 22% rate, about the same as in the last part of 2007.  So, for the moment the slowdown in China – from nearly 12% growth in 2007 – is a healthy easing to a more sustainable rate of growth.

Still, there are some things to be concerned about on the growth front.  Normally I would not expect the Olympics to have much direct effect in a large economy.  But, anecdotally, I am hearing a lot of stories from the business community about difficulties in getting visas, extra security and hence delays at ports, and transportation bottlenecks in some locations.  Since most of the manufacturing production is in the South of the country, far away from the main Olympic locations, there may not be much aggregate effect from these temporary dislocations. But it is also possible that the dislocations will have a modest, negative effect on production and exports. 

The World Bank released the China Quarterly Update —of which I’m the lead author, full disclosure here-- today at a press launch in our Beijing office. The economic journalists noticed that the Bank’s projection for GDP growth in 2008 is now 9.8 percent, more than 2 percentage points lower than the outcome in 2007. Several journalists asked whether it is not time to stimulate growth by loosening macro economic policies and/or what would be the most appropriate policies to relax.

Somebody living in Dallas or Dusseldorf may find it difficult to understand why a government would want to stimulate the economy when growth falls to 9.8 percent.

The difference in perspective is related to a question that has been raised many times since the sub-prime problems broke out in the US: What will happen to growth in developing countries and emerging markets when the US economy, and the European one as well, slows down considerably? Many developing countries and emerging markets had been growing rapidly in the years preceding the sub-prime problems—much more rapidly than high income countries. But exports to high income countries are important for most of them. So the question was: can developing countries and emerging markets “decouple” from the high income countries?

The answer given by many economists was (as usual) yes and no. Developing countries and emerging markets that, like China, have successfully integrated into the world economy cannot decouple from the global economic cycle because a weaker world economy means lower exports and investment. 

BusinessWeek reports that an annual study by one of Europe's top business schools indicates that Asian economies are overtaking the U.S. and Northern Europe to become the most competitive in the world. Singapore, in position #2, trails the U.S., but the author of the report expects it to take the top spot next year.

The 20th World Competitiveness Yearbook, released May 15 by IMD business school in Lausanne, Switzerland, also points to the fact that Asia has proven relatively immune to the U.S. financial crisis. Also, among the top 20 economies out of the 55 ranked, those in Asia-Pacific posted the greatest gains compared with last year. A few examples: Malaysia climbed four spots to #19, Thailand rose six spots, and the Philippines went up five (see all rankings here).

The report also indicates that Asian economies are developing not only domestic markets but also regional ones. Growing investment and trade among Asian nations "is creating a very strong level of confidence in the region," IMD professor and report author Stéphane Garelli said. He added that the emerging economies of Vietnam and Kazakhstan will join the rankings before long.