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By M. Isi Eromosele
While the current economic crisis has produced a significant
impact on countries and regions around the world in various ways, the intensity
of the impact differs from country to country and from region to region.
The global financial crisis has utterly upset the growth structure of the United
States , its epicenter, as well as countries
like the United Kingdom
and Spain that had realized strong growth in domestic demand through an expansion of the housing market and
consumption and an increase in the domestic credit market.
As a result, those countries have suffered serious recession,
with housing investment and personal consumption declining sharply.
At the same time, export-oriented countries such as Japan
and Germany, which depend heavily on external demand, including exports of
consumer durable goods and capital goods to the United States and other Western
developed countries that continued domestic demand-led growth were directly hit
by the impact of the recession in these countries.
Their industrial production dropped sharply because of the combined
effects of this decline in exports of final goods and a drop in exports of
parts and intermediate goods to overseas production bases in Asia
and Eastern Europe , and their economies initially contracted
at an unprecedented pace, even more sharply than the U.S.
economy, the epicenter of the crisis.
Conversely, although the economic growth of emerging
economies such as China ,
India and Brazil
was slowed down by a decline in exports, the impact of the crisis on them has
been limited compared with the impact on developed countries because of the
robust consumption and strong demand for infrastructure development that are
typical features of emerging economies.
In addition, fiscal measures to stimulate consumption, including
tax cuts and subsidies and credit easing measures such as interest rate cuts
brought about some positive effects to these countries, as potential fund needs
are generally strong there.
However, the situation is different for emerging economies
in Eastern Europe, such as Hungary, that depend heavily on an inflow of foreign
funds attracted by their high growth potential from European developed
countries in order to meet the fund needs for achieving economic growth.
Many of the East European emerging economies have become
unable to secure seed money for growth and plunged into serious recession. Among
Asian emerging economies, Singapore ,
Malaysia , South
Korea and Taiwan ,
all of which depend heavily on exports, were initially thrown into serious
recession.
Besides being conspicuous for the extent and depth of its
impact, the current crisis is also notable for having exposed the problems and
weaknesses of the existing growth structures of countries and regions.
As a lesson of the crisis, priority should be placed on
correcting these problems and weaknesses.
Economic Stimulus Measures And Their Effects
The United States ,
the epicenter of the crisis, adopted an economic stimulus package with expenditures
totaling a record $787.2 billion over two years.
European countries implemed economic stimulus packages
totaling 600 billion Euros. In addition, the European Commission decided to disburse
8.3 billion Euros from the European Structural and Social Funds and allocate 5
billion Euros each to infrastructure investment and support for research and
development in the auto industry.
The stock markets around the world were the first to respond
to the announcement and implementation of the series of huge economic stimulus
packages.
After continuing to plunge for some time, U.S.
stock prices have bottomed out and continued to rise since 2009 when the U.S. Department
of Treasury announced a plan for purchasing troubled assets. In line with the U.S.
stock market rebound, stock markets in Europe , Asia
and Japan have
also been recovering.
Following the rebound of the stock markets, the real
economies have started to show some signs of positive effects brought about by
the economic stimulus measures, although the pace has been slow.
For example, Japan ,
Germany , France
and Italy , each
of which has a major auto industry, introduced incentive schemes for the
purchase of new cars and these schemes have produced some positive effects.
In Asia , the Chinese government introduced
subsidy schemes to promote the purchase of cars and home electric appliances by
rural residents and as a result, sales of cars and home electric appliances
increased sharply.
The effects of the Chinese economic stimulus measures have
contributed to an expansion of production by South Korean home appliance manufacturers,
for example, increasing their exports to China .
As a result, orders for some eligible models, including
hybrid cars, have increased sharply, raising hopes for an increase in
consumption.
Asian Countries Acting As The Growth Engine Of The Global
Economy
Amid the serious global recession, emerging economies, including
China and India, which have maintained relatively strong growth despite the
slowdown and Brazil, the Middle East and African countries, which are
recovering more quickly from the impact of the global crisis, are attracting
hopes as the future growth engine of the global economy.
According to estimates by the IMF, while the U.S.
and European economies are likely to show much growth in the near future, the
economic growth of the emerging economies is projected to accelerate in the
coming years.
It is also apparent that economic stimulus measures
dependent on governmental fiscal expenditures cannot be continued over the long
term.
As the emerging economies in Asia and
other regions achieve an expansion of domestic demand and sound development of
their own asset markets, they, with their huge populations, have essentially
become the new growth engine of the global economy.
To that end, it is important that they expand their middle-income
class and effectively implement measures to enhance their competitiveness and
resolve regional gaps, including building high-speed railways and advanced
information highways, modernizing their financial systems and introducing
advanced medical and educational services.
Positive effects brought about by these emerging economies
as they continue to post strong growth amid the crisis are expected to spread
to developed countries if companies from developed countries develop and introduce products and
services targeted at the emerging economies’ middle-income class, which is
expected to grow significantly in the future.
In order to secure future growth of emerging economies and
spread positive effects brought about by their growth to countries and regions
around the world, it is essential that these countries ease restrictions on
investment and maintain and enhance the free trade system under the WTO.
M. Isi Eromosele is
the President | Chief Executive Officer | Executive Creative Director of Oseme
Group - Oseme Creative | Oseme Consulting | Oseme Finance
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2012 Oseme Group
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