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BW Businessworld

So, How Do They Look?

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By the time you read this, May 2013 will be history. It seems a good time to take stock of how the US, the Euro area and China have been shaping up, and what their growth prospects are. 
 
Let us start with the USA. With a nominal gross domestic product (GDP) of $15.7 trillion in 2012, it accounted for 22 per cent of global income. In January-March this year, its GDP grew 2.5 per cent — compared to the previous quarter and annualised. Which was a bit better than the growth for 2012 as a whole: 2.2 per cent. This isn’t much to write home about. Yet, it was 0.4 percentage points better than in 2011. 
 
Moreover, the consensus is that the country will grow at more or less the same rate in 2013 which, by the way, is better than the IMF’s predicted growth of 1.3 per cent for the advanced G7 countries.
 
Though growth remains modest, there are several signs of an uptick in the US. The unemployment rate, which had touched 10 per cent in October 2009 and remained at 9 per cent or more for 29 out of 36 months between 2009 and 2011, has started steadily coming down from 2012. In April 2013, the jobless rate stood at 7.5 per cent of the adult workforce.
 
Equally, there has been a steady growth in housing starts throughout the US, which has accelerated over the last 12 months. Add to that a substantial improvement in the Conference Board’s Consumer Confidence Index, which was up 7.2 points in May 2013 and ruling at a five-year high. 
 
All said and done, therefore, the US seems to be well on its way to recovery — aided by the Federal Reserve’s continued stance of having an easy money policy. I would be somewhat cautious, but give it a thumbs up.
 
Unfortunately, nothing of the sort can be said about the Euro area, which had a GDP of $12.2 trillion in 2012, or 17 per cent of global income. It is in a right royal mess. In 2012, its GDP shrank 0.6 per cent; and in 2013 it is expected to shrink further by anything between 0.3 and 0.5 per cent.
 Consider the big four in the Euro area: France, Germany, Italy and Spain. France is again in a recession. Its GDP growth was flat in 2012; and is expected to shrink 0.2 per cent in 2013. 
 
Germany’s growth is expected to fall from 0.9 per cent in 2012 to 0.6 per cent in 2013. Italy continues to wilt: its GDP contracted 2.4 per cent in 2012, and is forecasted to shrink further by 1.5 per cent in 2013. 
 
And Spain is hurting badly. After a fall in GDP of 1.4 per cent in 2012, it is expected to further reduce by 1.6 per cent in 2013. More than one out of four are unemployed in Spain — this being one out of three for the younger populace. 
 
Among others in the Euro area, Greece continued to contract —by 6.4 per cent in 2012 and an expected 4.2 per cent in 2013. As did Portugal: minus 3.2 per cent in 2012, which may further reduce by 1.5 per cent in 2013.
 
The Euro area is in doldrums — weighed down by rigid labour laws, poor productivity, unsustainable deficits and lack of international competitiveness. It is a ‘two thumbs down’.
 
Now for China. In 2012, with a GDP of 8.2 trillion, it accounted for 11 per cent of global income. As an aside, India’s GDP was $1.8 trillion. China grew 7.8 per cent in 2012 — by far the best among the large economies. It is expected to grow 8 per cent in 2013. Investments accounted for 47 per cent of GDP in 2012; savings was 49 per cent; and the current account surplus was 2.6 per cent of GDP. For India, the same three variables were: 35 per cent, 30 per cent and a current account deficit of 5 per cent. Need one say more? 

The author is chairman of CERG Advisory.

omkar(dot)goswami(at)cergindia(dot)com

(This story was published in BW | Businessworld Issue Dated 01-07-2013)