Sunday, January 9

Carry On 2011

It is never easy to connect the dots in various socio-political and economic trends in the world around us; and least as it limps back post massive upheavals a couple of seasons ago. On the balance, at the dawn of 2011, the mood in India is sombre: the scars from a slew of high profile scams last year yet to start to heal. At the same time, we are much better off globally than end 2009 (and most certainly 2008): World economy appears to have allayed double-dip recession concerns, with recovery on track even if not fully out of the woods.

What would this year be like? I can stick my neck out to venture it may be more difficult than the one gone by, with initial momentum from a rebound mostly dissipated. Deleveraging of the global economy is clearly a long haul - only a shift from private to public debt has been achieved as we speak. Global recovery too is multi-speed, with stars in Emerging Markets but concerns in parts of the West. In the QE2 context, this implies that fiscal stimulus shall stay a while, notably in the EU and US. Equally (though this may not impinge the Indian story much), the highly correlated rates of change in economic growth trends (even if actual values vary) demonstrates the intertwined nature of modern markets. Given the massive relative size of the First World economies, this means national fortunes remain inextricably tied together.

There are other concerns too. The most critical is commodities: oil should already be giving sleepless nights to all energy-deficit governments. It is the tip of an iceberg: most essential items, notably foodstuff, have high-strung demand supply equations that can poop the 2011 party. Worrisome too is inflation and possible asset bubbles that can derail the EM script. Last but not least, EU has to manage a mismatched fiscal belt-tightening (austerity measures in Greece etc that actually need monetary elbow room; and absence of any in Germany, France - economies that can afford tighter policy!) and the Euro’s Draupadi-like nature. Obviously (an outside chance, nevertheless) a sovereign debt default will set the cat among the pigeons.

Not unlike 2010, the key remains a coherent, calibrated and effective policy response. This is also my biggest concern. In a multi-speed recovery world, domestic political pressures can easily upset the current global consensus. Such a breakdown is not unimaginable. It can come via protectionism due to the First World’s persistent structural unemployment, or even rampant Chinese assertiveness. In fact, how the world manages an unavoidable rebalancing of global power would be this decade’s most significant megatrend, apart from the transnational commodity supply crisis and the ogre of terrorism or localized discontent.

No doubt we will watch these trends unfurl going forward. In my first post in 2011, I sign-off on a happy note though: a tribute to Mankind's achievement on two basic metrics: average income and life expectancy, in the last two centuries. Go watch!


Anonymous said...

Great video -- does kinda add perspective :)

I would have expected that things would be a lot more cheery in India as it is though -- corruption ain't all that new -- right dude?!