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SANDERS: Searching for the elusive ‘soft landing’
Question of the Day
The new year’s worldwide economic downturn has had an interlocking effect: Every national economy is searching to accommodate itself politically and economically to what looks to be an extended period of low growth. After longer or shorter periods of unrivaled prosperity, they are feeling for a “bottom” — a level at which to wait out the downturn until new growth arrives. That is the proverbial “soft landing.”
Last to go through the motions are the BRICs — Brazil, Russia, India and China. Some hoped they would be immune to the U.S. and European blights because of their developing domestic markets. That is turning out to be a foolish miscalculation. All four countries, to a greater or lesser extent, were dependent on exports. With Western consumers’ incomes dropping, markets are drying up while the arrival of low-cost competitors is proving an additional irritant.
China is, of course, the most critical case since “the factory of the world” has accounted for most of the recent growth in commodity markets. Brazil, benefiting from a new middle class and a developing internal market, nevertheless will feel China’s slowdown, even as Brazil deals with its own currency bubble that is discouraging exports and encouraging capital flight. (Ask the Miami real estate agents about their best customers.) Australia, which offshored manufacturing decades ago, first to Japan and then China, sees ore prices dropping, with oil and gas exports soon to suffer. Russia’s high-cost oil and gas sales, Moscow’s only economic crutch, are now threatened as worldwide consumption falls dramatically. (Ironically, Tehran’s threatened closing of the Hormuz Strait — the mullahs’ way of boosting oil prices — is a proving a boon to Russia.)
Chinese official figures, always dubious, indicate growth moving down toward 8 percent annually — a rate that conventional wisdom says is the minimal one needed to absorb population growth and sustain a politically potent urban elite. The question, of course, is whether this is the end of the slide. Unanticipated events surely await Beijing’s jerry-built economic structure, already heralded by growing unemployment and strikes, often against foreign multinational assemblers under pressure to trim their costs even more.
China’s communist leaders promise a turn away from unrestricted government-backed infrastructure expansion and subsidized exports to a focus on domestic consumption. So far, it has been just talk. Having starved the rural sector for more than two decades — after an initial spurt of agricultural liberalization — Beijing has little leeway to act. The $4 trillion “stimulus” to meet the 2008-09 worldwide financial crisis went disproportionately to inefficient giant government corporations, and bank credit is now stretched, particularly at the local level.
India, long seen as Beijing’s lagging development rival but with a population of 1.3 billion people soon to surpass China as the world’s largest, has also snagged. Monumental corruption scandals, involving New Delhi’s morass of British colonial and Nehru-era Soviet-style bureaucracy, have halted economic liberalization. Indian family capitalists are turning to overseas investments, and new government programs to remedy horrendous inequalities will only add to inflation, a rise in prices that Prime Minister Manmohan Singh’s exhausted government has failed to contain. India’s soaring trade with China — raw materials exchanged for cheap imports — will be hurt by Chinese cutbacks, and Indian manufacturers already are calling for protection. All of this, of course, takes place against a background of continuing tension along the 2,000-mile Tibetan border and Chinese commercial and possibly military expansion around an Indian Ocean that New Delhi would like to call its own.
All this plays out against the chaos in the eurozone, with the 17 euro-using EU members unable to find a quick solution to the dilemma posed by its defaulting southern members. The struggling euro countries are increasingly overwhelmed by debt and unemployment as the proposed remedy, austerity, kicks in. Reduced consumption in the world’s largest market will increasingly ripple through the rest of the world. And if European banks, overleveraged with public as well as private debt, cannot be recapitalized quickly, there is danger of another financial crisis to which the U.S. would not be immune.
An anti-business administration in Washington still refuses to end its environmental war that is crippling American energy while engorging already bloated Persian Gulf tribal hoards. U.S. growth, produced through ever-rising public debt, is feeble, with vast structural changes as well as a lack of business confidence feeding unemployment and sapping consumer confidence, the wellspring of world growth. So far, the U.S. economy’s vast dimensions have braked the downturn. But rising U.S. exports, based on a devaluing dollar, will feel the sting of the EU and BRIC weakness, pointing toward a Washington search, too, for its own “soft landing.”
• Sol Sanders, a veteran international correspondent, writes weekly on the intersection of politics, business and economics. He can be reached at email@example.com and blogs at www.yeoldecrabb.wordpress.com.
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