Global Recovery should call its agent. The bold economic recovery as expected this year should be a reason for the celebrations. Gross domestic product (GDP) will experience its biggest growth in the years following the biggest collapse since the 1930s — perhaps even decades. Instead, almost daily updates to growth forecasts are hand-me-downs about how much everyone relies heavily on the US and China — and the prospects for a significant increase in inflation. Nassers sometimes prefer underdeveloped expansion.
The revival is likely to be very impressive. On Tuesday, the International Monetary Fund (IMF) raised its 2021 forecast for global economic expansion to 6%. The Organization for Economic Cooperation and Development (OECD) marked up last month. Bloomberg Economics forecasts an impressive 6.9% forecast, the highest in 60 years. Most of these bullish scenes are based on an explosion in the US, reminiscent of Reagan’s Halcyon days of the Middle Ages and Chinese figures resembling a boom in the decade after Beijing’s entry into the World Trade Organization.
Isn’t it a problem that the two major economic powers in the world are pushing it out of the park? You might think so with some focus on the flaws of recovery. Yes, ideally you want something more broadly balanced, sharing with the developing world and the eurozone spoiled ones. The big bounce from the deadly contraction of 2020 will not happen without the US and China doing very well.
I find it hard to recall, at least to some extent, the meaningful progress of global growth. Techbust and China received praise in the early 2000s, in the years before and during the global financial crisis. There is a double standard of growth. If Reagan goes back to exaggeration, the U.S. was crucial to recovering from the global recession of the early 1980s. Large parts of the world were not even involved in capitalism at that time. The Cold War with the Soviet Union was raging, and Deng Xiaoping began to open up China.
The other major complaint is that the U.S. is exporting every inflation. Worldwide bond yields have risen over the past few months on expectations that prices will rise. Of course, they will. The boom of the estimated magnitude is, by its very nature, a reflection. Many people in the epidemic, before the epidemic, forget that inflation was very low.
What is happening now is that, rather than the problem of inflation, we are seeing that every single inflationary force is dissipating. In South Korea, for example, inflation returned to its pre-epidemic level in March as oil prices remained strong and consumer demand began to recover after a year-long recession. But that pre-Kovid level is 1.5%, which is well below the Bank of Korea target of 2% compared to the previous year. In many parts of the world, certainly in Asia, we are a long way from the ‘bad’ inflation that was the curse of the world in the 1970s and early 1980s.
Unnecessary focus on the scars of this boom reflects a deep pattern change that people are struggling to process.
As my colleague John Authors noted, this is a boom, unlike what investors have seen in their careers. I go even further, the geographical nature of this boom — the best American show-life ever since the victory in the Cold War — has been uncomfortable. It has been almost four decades since America led the world economy.
We have long been immersed in the message that China’s growth from sliced cheese is the biggest thing. A sibling story that high growth rates, emerging emerging markets between the young population and the middle class are the future. However, the US is currently looking at more power than many emerging markets. And, by the way, population dividends in Asia are not paying as much these days.
China has some magic formula, and for a generation bred with the idea that the West has Washington as its proxy, it has a lot to digest – to be satisfied with a few percent growth points per year. There is a drumbeat of expectations that China will disguise America as the world’s largest economy within this decade.
Maybe so. But the US Federal Reserve is protecting the global monetary system and now the turbo-charged US expansion this year tells us that Uncle Sam is not so much in and out. I suspect we need a new framework to see the world. For now, let’s start by enjoying 2021.
Daniel Moss is a Bloomberg opinion columnist covering Asian economies.