Raising The Reg Flag
Photo Credit :
As India applauded PM Narendra Modi’s debut on the world stage at the G-20 nations’ conclave in Brisbane, we at home missed all the signals of a looming crisis. Underlying the bonhomie at the G20 summit was a sombre note that much of the Indian media failed to pick up.
In a widely quoted signed article in The Guardian, British premier David Cameron said with cutting candour: “Six years on from the financial crash that brought the world to its knees, red warning lights are once again flashing on the dashboard of the global economy.”
“As I met world leaders at the G20 in Brisbane, the problems were plain to see. The euro zone is teetering on the brink of a possible third recession, with high unemployment, falling growth and the real risk of falling prices too. Emerging markets, which were the drivers of growth in the early stages of the recovery, are now slowing down.”
Cameron also put forward his prescription for protecting Britain from a possible euro zone collapse. Dumping the approach that “we could spend, borrow and tax our way to prosperity”, he made it clear he would opt for a more protectionist regime — keeping debt, deficit and borrowing low, while attracting investment. Whether this line will succeed or not is yet to be seen. But, clearly, the ‘warning lights’ that Cameron speaks of will translate into falling exports from emerging markets like India to the euro zone, and very little investment flowing out of Britain and Europe into India.
The news from the East wasn’t good either. Japan, the world’s third-largest economy that economists thought would grow 2 per cent in the July-September quarter, actually shrank 1.6 per cent due to sustained weakness among consumers and in manufacturing. Housing investment plunged 24 per cent this quarter, compared to last year. With two consecutive quarters of contraction, Japan has slipped into technical recession.
The ‘Abenomics’ of PM Shinzo Abe, which was intended to give a spurt to manufacturing, growth and consumer spending through a lax monetary policy, fiscal spending and structural economic reforms, has not paid off. Wages and savings have continued to fall, and the Japanese refuse to spend unless they have to. However, Abe is expected to stay the course and has said that he will call snap elections in December when he still has the public ear and can gain a mandate to push through his policies.
The signs of an uncertain future are all over. China’s growth is slowing, and euro zone is just a whisker away from ‘recession’, notching a dismal growth of just 0.2 per cent in the July-September quarter. This spells trouble for India as it looks to welcoming investments and enhancing exports. An increasing ‘fortress’ approach in the developed world will mean less of both; and India, increasingly linked to the umbilical cord of the world oil economy and ‘globalisation’, will need more than the Modi magic to come out unscathed.
(This story was published in BW | Businessworld Issue Dated 15-12-2014)