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June 09, 2009

More on the inevitable US-China slowdown

Harvard University Prof and former IMF chief economist weighs in via his Businessworld column.
US consumption, the single-biggest driver of global growth, is surely headed to a lower level, on the back of weak housing prices, rising unemployment and falling pension wealth. During the boom, US consumption rose to more than 70 per cent of GDP. In the wake of the crisis, it could fall down towards 60 per cent.

...Chinese growth is set to slow over the longer run as well. Even before the financial crisis, it was clear that China could not continue indefinitely on its growth trajectory of 10 per cent or more. Environmental and water problems were mounting. It was becoming increasingly clear that as China continued to grow faster than almost anyone else, the rest of the world’s import capacity could not keep up with China’s export machine.

...Even after the crisis, global growth is almost certain to remain lower than the pre-crisis boom years for some time to come. This change may be good for the environment, for income equality, and for stability. Governments are right to worry about the quality of growth, not just its speed. But when it comes to tax and profit estimates, investors and politicians need to reorient themselves to the ‘new normal’ — lower average growth.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in