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(a) It is indeed true that the global recovery is continuing, and different regions with different proceeding speeds. However, there are still many questions in the current recovery, such as the inflation and policy problems in the economic growth and unemployment. And below the figure 1 shows the process of global growth on GDP.
1.1 The United States
According to the survey data from January 2011, (Julia Kollewe) it shows that in last year, the US economy regained momentum in the fourth quarter, because of buoyant exports boosted and dramatically increases in the consumer spending. A pick-up in exports also underpinned fourth-quarter growth, it is the first contribution in a year. Especially, the trade contributes to GDP growth with adding 3.44 percentage points.
In January 2010, President Barack Obama set a goal of doubling the nation’s exports in five years – and the nation is on track, selling vehicles, airplanes, agricultural goods around the globe. China, Japan, Mexico, Canada and the European Union account for more than 60 percent of US exports.
The US has no other obvious source of growth needed for recovery. And families put their money in the bank and stay out of the mall between 2007 and 2009. So, it is impossible that depend on shopping or home-buying to make growth. From the long-term, exports are the only alternative.
Last year, the US shipped goods and services abroad worth $1.55 trillion. It included 1.7 million cars, 300 civilian airplanes, 540 million kilos of almonds, 25 million kilos of lobster, $20 billion worth of semiconductors, even 9,900 electrocardiograph machines for the world’s hospitals.
The most outstanding is the Port of Los Angeles in recent years. This year the trend got a big turn: Each month, the port ships 18,000 more filled containers to Asia. And more cargoes than most realize go to China. During the first half of this year, America’s long-suffering automakers shipped 56,000 cars to Beijing, Shanghai and other wealthy cities – up six-fold from last year’s 9,000. Similarly, Sold to China’s cotton have doubled, medical equipment jumped from $400 million to $500 million, and the situations also in printed circuits, paper, artificial limbs. (Edward, 2010)
Figure 1. US Exports January 2006-April 2010
However, two weeks ago, the Obama Administration showed the latest data: although 1.8% increases in First-quarter GDP numbers, far less than the expectations of above 3%. Similarly, in second-quarter estimates, it is not much better.
According to the GDP figure, the US indeed has economic growth when in recovery period. However, it appeared repeatedly fall phenomenon from first quarter to second quarter in 2011. The main reason is the structural headwind. Because it is rising commodity price, notably of fuel, which determined the weak private spending trends. What’s more, as revenue collapses and spending rises is far lower than expected GDP,
Which made the weak private spending trends also trend increase the huge fiscal deficits.
So, in my opinion, consumer price inflation is a core measure. And it must match adaptive system in monetary policy and structural policies. The monetary policy can be focus on fiscal consolidation, moves towards “normalization”, and structural policies can be started from labor market policies.(newspaper)
The Organization for Economic Corporation and Development (OECD) stresses that labor market policies play a core role, it can prevent the cyclical unemployment. It is thus clear that high unemployment rate becomes a potential crisis, at the same time, it will affect the long term fiscal growth.
As shown in Figure 1, the ratio was 64.3% at the NBER business-cycle peak in 2001, which shown by the upper line:Q1. By the next peak (2007:Q4) it had fallen to 62.8% (the following line).
• The US economic recovery was not a complete recovery during 2001 to 2007, which can be according to the decline from 64.3% to 62.8%. And there is a seemingly slight 1.5% drop in the ratio, however, in fact, even before the recent recession it stands more than 3.6 million losing their jobs.
• In the middle of 2011, the ratio can be shown as a wavering line. It just is only 58.1%. In other words, it is far below the levels in 2001 and 2007.
Figure 2 shows that compared to the 2007, there are 10.4 million losing their jobs. And compared to the definition of 2000, there is much higher 14.1 million losing jobs (Robert, 2011)
1.2 Central European Countries
Central European economics
In 2011, to Central European economics, the ongoing recovery from the global financial crisis and return to growth will be the dominant theme. Carryovers from the crisis include the rise in unemployment, especially in the Baltics, Slovakia and Hungary. And Poland was a tariff-free country, so there is the decline in output or GDP. Hungary and Romania will continue to face serious financial problems, with anemic growth and large debts. Hungary’s depend on a mix of loose monetary policy, where the PMI rose to 55.9, from 53.8 a month earlier. EU transfer payments and FDI inflows, and debt payments problems were making by Romania, together with its growing unemployment and bulging gray economy, will likely keep both countries on the economic watchlist for months to come. (Wess, 2011) In the Czech Republic, the index was 54.3 compared with 53.1 in January.
The most outstanding case is about the Poland. Poland is treated as one of the best performers in Central Europe over the past years by The World Bank. The strong consumption, integration deeply with EU markets, and the EU funds’ effective uses are the main reasons for Poland’s success. This year, there are 4 percentage rates in economic of Poland, and both Estonia and Slovakia are also having the economic growth. Because its exempt policy access to European Union markets, which lead to attract foreign investment directly, it makes Polish incomes raising, even up to the levels of those in the U.S. and Western Europe. At the same time, there is an internal factor in agriculture. Poland has a strong agriculture heritage, it can satisfy different level demand, so it is a leading producer in Europe, such as high quality grains, vegetables, fruits and dairy.(Evan, 2011) And now, most former state farmers are owned privately, and they played an important role in the successful recovery process.
However, the European debt crisis still not fully resolved yet, especially in some of Western European countries, such as the Monetary Union is not complete, and it needs integration about more fiscal, financial and political.
Overall in my opinion, the global recovery is underway. To the Unites States, there is indeed recovery in economic performance, however, the speed of recovery is to slow, and Gavyn Davies said that the US recovery is extremely disappointing, which is written on his Financial Time blog. To Central European countries, their economies are exactly recovery with a quick pace. It shows the power of resilience and flexible of the market. And there is an airspace deal was signed by seven central European countries in May 2011. It opens co-operation opportunities, and shows their confidence for economic recovery and improvement. Finally, I feel that if the export and the demand can increase, the unemployment rate can reduce, then it can restore economy health.
(b) In my opinion, I can not agree that the emerging economies never suffered the effects of the crisis. Because there are so many countries with different financial policies, even many countries did not have a financial crisis. And I will discuss on both effect.
There are three main effects:
1. The emerging economies would be affected by the depreciation of US currency.
US dollar is the world’s main reserve currency all the time, and most of the countries using US dollar always when they trading. Because US dollar as a standard of international currency. At the same time, the US having the international currency. Many emerging economic countries bought a great amount of the US debts and treasuries, including government bonds and agency bonds. However, there is depreciation in the US dollar because of the financial crisis, which made the big asset losses in these countries, especially China. China is the largest overseas holder of the US debts and treasuries. For example, on foreign exchange reserves, as high as $271.1 billion loss is suffered by China, which as a result of the depreciation of the US dollar. (China Daily, May 07 2011) Similarly, it affected the RMB appreciation. But China must dominate the RMB appreciation. Because it will make dangerous in increasing domestic wealth transfer to foreign countries, and restrict the Chinese exports.
2. The emerging economies would be affected if imports have dropped from US and European countries, especially the major export market to US and European countries. Such as, before the financial crisis, China’s textile and apparel are one of the main exports to the United States, and China has maintained a trade surplus. However the dollar’s devaluation also brings in less import. The textile industry and relative investment of China also were affected. Another example is about oil. Iran relies on oil revenues to support its economy. In 2007, 70% of Iran’s budget came from oil exports. Of these revenues, Iran’s government concentrated spending on salaries, subsidies, and public projects, but other activities, such as military operations, a nuclear program, and donations to Hizballah were also financed with oil money. Iran’s nuclear program is developing rapidly, and the nation is suspected of building nuclear arms. Not only have oil revenues allowed Iran to built and improve nuclear facilities, oil revenues also give the government the ability to sidestep sanctions and continue improving the nuclear program. Along with military expansion came domestic missile capabilities, a space program, and an advanced navy. (Greene, 2009) So, the United States’ dependence on oil imports will give Iran a serious impact on its development.
3. The United States had downgraded to AA+ on its sovereign credit rating. It added more uncertain factors to investors, and made investors lost their confidence. Even can make global creditors pit in it. For example, Americans buy cars from Korea and Germany, even others including Chinese toys, clothing and footwear and other products, if the United States decline in ability of the consumer, there will be slower growth in other countries in turn. (Stock Market Today, 2011) What’s more, once the United States continuing loss its status, make any negative difference in sovereign credit rating again, eventually cause dollar devaluation, the worst losses will be happen in China and Russia, which are holding the most US debts’ countries.
However, from other points of emerging economies countries, there is no big difference after the financial crisis, which is due to the development speed is fast and some slight moderation was adopted. And it can be shown as below
1. Due to the enormous growth, more and more investors treat Asia as their target trading markets. Such as General Motors has identified China as its most important growth market, because China overtook the largest US auto market in early 2009. China is currently the number two market for shipments of personal computers, and Hewlett-Packard is in talks with mobile carriers in China about offering small, portable mini- notebook computers. And the CEO of Philips put this in business perspective: “I could easily see that by 2015 around half of our revenue will come from there economies. That would put the center of gravity much more in emerging markets than it is today.” (Michael, 2010) At the same time, there is a big challenge in China. The interest rates went up, not much, if up, even increasing salaries also.
2. The emerging countries having the ability to internal boost their domestic market. For example, Brazilian. Brazil’s President Rousseff said that they will depend on reinforcing their domestic market to prevent the international financial. And data shows Brazil’s domestic market records 18% growth for 2009.
3. Some countries not affect due to the policy that protect the local market to rely on the international market. For example, India. Last year, several foreign companies in India wanted to do computer industry investment, after consultation and negotiation, and there are some clearly government regulations, which is in the times and amount of FDI, the number of employees and their relevant rights, the owner of Intellectual property and so on. It is clearly order that investment companies shall not optional pull the plug; protecting the interests of the employees as a prerequisite, ensure employment in the local market. And there are some typical risks in emerging economies in the process of future dominance. To foreign investors, the immature or volatile political systems will be the biggest risk.
Overall, advanced countries suffered deeper than emerging market countries in terms of economic activity.
There is a parallel contribution positive by the emerging economies in term of global governance.
At the beginning let us look at the main contents of the term global governance in the perspective of sovereign nations which also make up the major advanced or emerging economies in the world. Global governance or world governance could be defined as the complex of formal and informal institutions, mechanisms, relationships, and processes between and among states, markets, citizens and organizations, both inter- and non-governmental, through which collective interests on the global plane are articulated, rights and obligations are established, and differences are mediated (Thakur & Weiss 2006). With the strengthening reliance and interdependence between different economies, there is increasing call for global governance which designates regulations intended for the global scale and aims at solving problems that affect more than one state or region when there is no power of enforcing compliance (Miller, Vandome & McBrewster 2009, p114). From the definition of global governance, the major content is about setting rules, regulations and creation of formal and informal institutions and mechanisms to resolve the international conflicts and issues. Below are some facts and illustrative examples showing how the emerging economies, mostly the fast growing developing countries as raising political and economical powers make the parallel contributions to the global governance.
Emerging economies and the reform of the international monetary fund (IMF)
The financial crisis has accelerated changes in global governance structure the G20, including emerging counties, has gradually replaced the G8 to coordinate global economic issues under the current major mechanisms (Chinausfocus.com 2011). With the important role of IMF in the world economic and financial system, it is said that the global governance structure cannot be separated from the governance of IMF. The increased role of the emerging economies in IMF would certainly indicate a positive contribution of these economies in the global governance.
In 2009, at the IMF’s annual meeting for the northern spring, the four countries said they were willing to contribute to a previously announced quadrupling of IMF resources to $US1 trillion ($1.38 trillion), mostly by purchasing bonds as part of the strategy by the developing nations to gain a bigger say at the IMF (Theaustralian.com.au 2009).
Figure 3 IMF voting shares compare with global economic shares
Even after the effort from Brazil, Russia, India and China to get more bargaining power and voting power, there is still one serious problem with the IMF governance which is the imbalance of power distribution among the members due to the fast growth of the emerging developing countries as the figure above shows. For example, the economies of the European Union countries amount to just less than 24% of the global economy. The economies of Brazil, Russia, India, China and South Africa together make up about 21% of world GDP. But the European countries have 32% of the votes in the IMF, while the BRICS have 11% (Economist.com 2011).
On December 15, 2010, the Board of Governors, the Fund’s highest decision-making body, approved a package of far-reaching reforms of the Fund’s quotas and governance, completing the 14th General Review of Quotas. This package will promote the reform of the IMF’s quotas and governance to better show the new balance of power in the global economic environment particularly in the post crisis world economy with changed weights of the IMF members. The proposed reform includes have the following measures that will increase the role of the emerging economies in the IMF governance.
1. Change of more than 6 percent of quota shares to dynamic emerging market and developing countries (EMDCs);
2. China will become the 3rd largest member country in the IMF, and there will be four EMDCs (Brazil, China, India, and Russia) among the 10 largest shareholders in the Fund
3. Preserve the quota and voting share of the poorest member countries.
As shown above, this reform package is convenient to the emerging economies as the quotas will be expanded and the developing countries will gain more power than they used to have. But recently the international leadership campaign that comes with an accidental vacancy in the position of managing director in IMF had raised disputes between the developed economies and the emerging economies regarding the new leadership will adhere the previous structural reform that reflect the new power balance.
Though the reform has not yet been implemented, the emerging economies have already had a bigger say in influencing the new leadership campaign. In June this year, Christine Lagarde, the top candidate to lead the International Monetary Fund, visited Beijing, China following the visits to India and Brazil as part of a tour to garner support for her candidacy. In summary of the visit, she said that it would be “very legitimate for Chinese representatives to be included at the highest level of the Fund’s leadership” (Bbc.co.uk 2011). It is reported that the emerging economies have played a more and more important role in determining the future global governance of IMF beginning by voting for a candidate who supports the reform and could better represent the voices from the emerging economies.
Emerging economies and climate changes leadership
Climate change refers to a change of climate that is attributed directly or indirectly to human activity that alters the composition of the global atmosphere and that is in addition to natural climate variability observed over comparable time periods (Parry 2007, p21). The emerging economies are contributing a parallel effort or even a greater effort compared to their still smaller global economic share to the global governance of the climate change.
According to the WWF analysis Brazil, South Africa, China, India and Mexico are strongly placed at Cancun to push for action on innovative sources of public financing and a legally binding climate agreement under the UNFCCC” said Shepherd. The WWF analysis indicates that all the five emerging economies have relatively strong renewable energy standards and emissions reduction plans, laying the basis for further action that will be necessary in the future (WWF.org.za 2010).
In China, according to the National Development and Reform Commission (NDRC) of China by 2020 China will aim to raise the share of renewable energy to 15 percent by developing renewable energy sources, such as hydropower, biogas, solar thermal, and geothermal, as well as by promoting the development of the wind power, biomass power, and solar PV industries (Martinot.info 2007). This promise comes with a more meaningful implication when China emerged as the second largest industrial manufacturer in 2009 according to the United Nations Industrial Development Organization (Un.org 2010).
In Brazil, the largest tropical country launched the 2008 National Plan on Climate Change (PNMC) that calls for a 70 percent reduction in deforestation by 2017 and adopted a National Climate Change Policy in 2009 that lays out voluntary Greenhouse Gas Change (GHG) reduction targets (Worldbank.org 2010). Given the global deforestation that contributed to the increased seriousness of the climate changes, the policy and goals to protect the forest will positively help to slow down the climate changes.
India is another fast emerging economy that relies strongly on the carbon energy such as oil and 60% of which is imported. Similar to China, India also set target to increase the use of renewable energy. The country is aiming to achieve up to 10% of additional installed capacity to be set up till 2012 to come from renewable energy sources (Ehrgott, Naujoks & Stewart 2009, p15).
Other emerging countries also have similar policies and plans to help reduce either the greenhouse emission that is believed to be the major cause of the climate change or stop the deforestation that worsens and speed up the climate change. In conclusion, there is a parallel contribution positive by the emerging economies in term of global governance in the two discussed topics: resolving the climate change and helping with the reform of the international monetary fund (IMF).
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