The message from David Cameron has been that Britain, which exports a third of its output, can expect to see little improvement in the next few years. In fact, things may get much worse. Ambitious plans for Britain to export its way out of trouble have virtually foundered.
If we glance back, we see that fostering an export boom was a central plank of government policy following the banking crash - exactly when a fall in the value of the pound was supposed to further help the booming demand for British goods in all parts of the world. No doubt, Sterling did drop by a quarter, but Britain's trade deficit with the EU has been turning increasingly negative (importing more and exporting less). It is a fact that for some time an improvement in exports to south America, China and the emerging economies of Asia made up for some of the worsening figures from Europe. That also came to an end earlier this year as several emerging economies began to falter. This is what this biggie focuses on at this juncture.
Can the "Jobs Act" kick-start Italy's economy and attract foreign investors? Doubts are flying high. In Italy the broad jobless rate is 12.5per cent (just above the euro zone average). Rome is virtually wrestling with a youth unemployment rate of 44 per cent. High jobless count has proved difficult to be brought down in France and Italy.
France' Socialist administration sought to bring the unemployment rate below 10 per cent-the reality is it stayed in double digits and hit a record of 3.43m. The U S-the world's biggest economy-is growing at a rate ranging between 2.0 and 3.0 per cent a year and demand for energy is picking up. The US is edging closer to self-sufficiency in oil and gas.
Now Tokyo is also not an exception - it is staring at a decline in growth. Japan appeared to recover from the 2011 tsunami. However, "three arrows" of reform - higher government spending, cheaper credit and shaking up old-fashioned business practices-appeared to be working. Government spending put more money in people's pockets and they spent rather than saved. This pushed up inflation, in turn, above zero. Cheap credit also helped and discouraged savings, weakening the currency. Reforms, however, have proved more problematic and an ill-timed rise in VAT earlier this year discouraged spending.
The emerging group is on an average show. Rightly, the extent to which China's booming economy has been propping up the rest of the region, plus Brazil, Russia and Germany has become obvious now.
To overcome weak demand from Europe and elsewhere, China allowed state enterprises to borrow vast sums for investment spending. Will these be enough to keep the growing population in jobs?
To head off a debt-fuelled crash, Beijing has restricted the flow of credit, so much so that the talk of the town is: the official growth rate of 7.1 per cent could translate into something more like five to 5.5 per cent ultimately. In the recent past it exported work and jobs as manufacturing became increasingly interconnected. Side by side, huge amounts of energy have been imported from Russia, coupled with food from Brazil and machine tools and cars from Germany.
Debates on holding the soccer World Cup are now a matter of the past. As of now, with slowing growth and persistent inflation, the scenario is getting more challenging for Brazilian policy makers. Moody's had an investment-grade Baa2 rating for Brazil, with a stable outlook, meaning that the agency was not planning to change the country's grade for the time being. Accordingly, 'we now expect lower real GDP growth of 1.3 per cent in 2014 and 1.5 per cent in 2015, with risks tilted toward the downside,' it said.
The central bank also lowered its own 2014 growth forecast to 1.6 per cent from 2.0 per cent previously as well as changed its inflation forecast for 2014 to 6.4 per cent-the inflation index was close to the upper limit of the central bank's target range of 4.5 per cent plus or minus two percentage points. The full impact of a year-long tightening cycle that began with rates at 7.25 per cent was still to be fully felt on the price front.
The analysis will definitely remain incomplete, if the financial sector is not analysed properly.
Europe dominates the global banking industry with around 43 per cent of the total market. The Asia Pacific banking industry, however, grew much faster than both the European and North American regions during 2006-2011. The Asia Pacific region continues to possess the huge opportunity for industrial growth. The rising per capita income in the region is expected to drive consumer savings and investment in the banking sector. The banking industry is highly fragmented and includes segments such as retail banking, corporate, investment banking and asset and wealth management. The retail banking segment registered significant growth during 2006-2011. It has an excellent potential to grow at an even more rapid pace over the forthcoming years.
The massive unbanked population in India and China offers immense opportunities for banking companies. The world's central banks navigated different currents in the first quarter of 2014 and are preparing themselves for a variety of challenges in the months ahead. Developed economies such as the U.S., Europe and Japan are still struggling with slow growth and uncomfortably low inflation. The Bank of England is holding interest rates low even when the U.K. recovery picks up a bit of steam. Emerging markets are bracing themselves for the Federal Reserve's gradual winding down of its extraordinary stimulus measures. China's central bank engineered depreciation of its currency, the Yuan, amid signs of rising economic stress. Everybody is watching to see, if the conflict between Russia and the West over Ukraine spills over to hurt the global economy.
So far India is concerned, a number of public sector banks are registering a good going. The RBI (Reserve Bank of India) supervision and guidance have been picking up. It is not unlikely that a number of institutions will be involved in a merger or acquisition either as a buyer or seller over the next few years. By all probability, capital spending will increase and much of this spending is expected in the areas of information technology, regulation/control environment, new products and services, as well as acquisitions. It is better to use digital, social and mobile technologies in a variety of ways such as social media for external brand promotion and customer-facing mobile applications. Ultimately, there will be a few banks globally.
Regulatory and legislative pressures, however, continue to be the top growth barrier for institutions. Other hurdles include risk management issues, pricing pressures and the lack of customer demand.
Finally, it is to be remembered that the global economy is structured to systematically funnel wealth to the very top of the pyramid and this centralisation of global wealth is accelerating with time. According to the United Nations, 85 super wealthy people have more money than the poorest 3.5 billion people on the planet and 1.2 billion of those poor people live on less than $1.25 a day. Seven out of every ten people on the planet live in countries where the gap between the wealthy and the poor increased in the last three decades.
Despite our technological advancement, around a billion people go to bed hungry every night. And when our fundamentally flawed financial system would finally collapse, it will be the poor who will suffer the most. Again, the total number of unemployed workers in G20 countries is now around 93 million and that it is increasing with each passing day. The truth is that the United States or Italy is not the only one dealing with a systemic unemployment crisis. This is literally happening all over the planet. So what is causing this crisis?
Dr B K Mukhopadhyay is Management Economist.
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