Global Economy in Stabilization Without Full Recovery
By Kim Jae-kyoung
Staff Reporter
There are growing signs that economies are bouncing back from the deepest drop since World War II. However, pessimism is still rampant that the global economy will undergo a sluggish recovery, with many hiccups along the way.
According to the Boston Consulting Group, global recessions preceded by financial crises are longer, deeper and slower to recover, and although there have been some signs of "green shoots," it's hard to regard them as signs of a consistent upturn.
In particular, it says that considering the market outlooks of the U.S., EU, Japan and China, which account for around 70 percent of global GDP, the global outlook is not so positive, forecasting that a drastic upturn is not likely within next year in the U.S., EU, or Japan.
The freefall in the U.S. economy has slowed down, but a "U-shaped'' recovery seems most likely, the consulting firm said.
"Consumption is the key, but consumers need de-leveraging. Inventories may be falling, but sales are falling even faster. Money aggregates are growing but lending is stagnating," it said in its research paper titled "Impact of the Economic Crisis on the Global Financial Services Landscape."
The BCG remain even more pessimistic about the European economy, saying that the recovery there could be even more sluggish in the U.S.
"Euro-zone banks had higher leverages than U.S. and Canadian banks. High household indebtedness and real estate bubbles are worrisome especially in the UK and Spain," it said.
It also pointed out that Japan has learned from its "lost decade," but it is still facing severe problems, citing zero interest rates, increasing unemployment and limits on spending public money due to snowballing state debt, which accounts for 170 percent of the GDP.
The consulting firm remains relatively upbeat over the Chinese economy, saying that China is well equipped to avoid a slump. However, it added that this will not be enough to boost the world economy.
"The Chinese financial system is well protected from direct exposure to the crisis due to massive stimulus measures based on a budget surplus and low level of government debt," it said.
"Although contributing to stabilization, China's growth itself cannot alleviate the global crisis. Chinese contribution to the global economy remains relatively small ― less than one-third of the U.S. contribution, which is estimated at around 25 percent."
It projected annual growth rates of less than 2 percent for the United States, Europe and Japan until 2015. Emerging markets like China, India and Brazil, meanwhile, will return to their pre-crisis growth levels ― China marking 8 to 9 percent annual growth, India 6 to 7 percent and Brazil 3 to 4 percent.
As for the Korean economy, it said that a few Korean companies' recent success in export markets is mainly driven by relative price competitiveness due to foreign exchange rates.
The BCG pointed out that more hiccups in the recovery process are still possible due to various uncertainties in the global economy, citing weak household finance, ugly balance sheets at banks and growing public debt, which all lead to concerns about the sustainability of the recovery.
"A double-dip or long-standing recession could occur due to the possibility of failure in governments' exit-strategy and the devaluation of U.S. commercial real estate," it said.