What’s happening in emerging economies?
The World Bank recently cut its growth forecast for developing Asia-Pacific economies to 7.2 percent, down from its May forecast of 7.6 percent, while also cutting its forecast for China from 8.2 to 7.7 percent even though there are some signs of a slight recovery in Chinese manufacturing. As eurozone economic activity declines further, Western politicians think that this will cause a dramatic fall in global growth. Some aspects of this pessimistic approach are right, but not all of them. The main reason for the global slowdown, as well as the slowdown in emerging countries’ average growth remains the economic problems of the Western hemisphere.
Not long time ago, almost everybody was talking about the miraculous economic progress of Brazil, Russia, India and China – the BRICs. These countries implemented rational policies which made them the most successful examples among emerging economies. High growth rates, low inflation, brilliant export performances, huge foreign exchange reserves, negligible unemployment, the biggest financial institutions and more made even rich countries jealous. In Turkey, people frequently wondered why the country’s national economy could not reach these countries’ level even though all its macroeconomic figures were brighter than theirs years ago.
When the 2008 crisis began to hurt highly developed Western countries, especially in Europe, most politicians, businesspeople and even some academics hoped that the high economic performances of the new powerhouses would contribute considerably to the rescue efforts of the Western governments. This wishful thinking recently collapsed after a long for this contribution. It is now clearly understood that even if there is no slowdown in growth, the total economic potential of the BRICs cannot create an effective leverage effect to save the world economy.
There were various reasons for that exaggerated optimism at the beginning and such a large disappointment later. For example, the social and political situation in these countries was not discussed thoroughly. People who envied their economic performances preferred not to see look at the social and political conditions.
Why did some of the wise people in the Western world not comprehend that, despite the low wages, lack of trade unions/collective bargaining, wide use of child labor, lack of respect for copyrights and patent rights, and similar acts in those countries, the BRICs could no longer ensure the continuation of their high growth rates when Western economies were in serious trouble? The reason is obvious: Western economies are their biggest markets; if the total demand in those markets is weak, their growth potential also weakens.
In addition, new problems are emerging in those countries. For example, the inflationary effects of the stimulus program implemented in order to prevent the damage of the recent crisis will surely become the main concern of Chinese leaders. Moreover, the stimulus program has not been able to provide a boost to already-slow growth. Elsewhere, with foreign policy problems and an indecisive government, India now faces slowing foreign investments and growth. Although its growth has also been slowing recently, Brazil has no such complex political problems, but it also does not have sufficient power to contribute to the salvation of the world economy.
However, even if those emerging economies find a way to grow at the same pace and solve their political problems, their combined economic potential is not enough to help the Western world.
In short, if there is still a worldwide crisis, an individual country or a small group of countries cannot even help themselves by crippling their social and political structure for the sake of continuing their miraculous economic performance. And it is impossible to become a new powerhouse of the world economy relying solely on a brilliant economic performance.