The outlook for the global economy is surprisingly strong despite the failure of the G-20 at Seoul to do much to support it. World growth should average 4.5 percent this year and in 2011.
This rosy aggregate, however, masks very sharp differences around the world. The emerging and developing countries are expanding at better than 6 percent annually. The high-income developed countries will come in under 3 percent.
East Asia is growing three to four times as fast as Europe and Japan. The United States is in the middle. The developing countries as a whole are expanding twice as rapidly as the rich. The emerging nations fortunately account for half of the global total; they can thus carry the world with them, and their share is rising steadily every year. They made up half of the G-20 that met in Seoul, reflecting the enormous shift in global economic power that has occurred over the past three decades and is likely to become even more pronounced in the years ahead.
The major risk to this reasonably optimistic outlook is premature policy tightening in the high-income countries. The Federal Reserve has alleviated much of that concern in the United States with its quantitative easing of monetary policy, but Germany is tightening its budgets despite the total absence of pressure from the financial markets. The other big risk is that the G-20’s failure to resolve the large and growing current account imbalances and exchange rate misalignments, especially between China and the rest of the world, could trigger trade and currency restrictions that will stifle growth everywhere.
Previously published in the Washington Post as part of a group of analyses by economists on the global economic outlook following the G-20 meeting in Seoul. C. Fred Bergsten is editor of The Long-Term International Economic Position of the United States.