World economy depend on any single country

WORLD ECONOMY NOT DEPEND ON ANY SINGLE COUNTRY

American consumers are known to have single handedly kept the world economy spinning. Asians are frugal, Europeans are gloomy according to conventional wisdom. If Americans stop spending whether it will have any impact on world economy? In this article our reply is ‘No’ and we are deliberating on the reasons.

Let us start with America’s housing boom threatening into a bust——— home sales and residential construction are rumbling and house prices have started to slide—– many forecasters expect house hold spending to stall. A few even expected a recession and earlier downturn of America have dragged the rest of the world economy down.

This time we reason that it will not turn other economies down. The real driver of world economy now is Asia which has accounted for half the world’s growth since last 5 years. During this period America has accounted for only 13% of the global real GDP growth using purchasing parity weights (PPP). Asia’s contribution in this direction is 21% higher than America’s 19%. Even in current dollar terms.

According to IMF Asia and not America has been the main driver of global demand and not because Asians are producing so much more. Asian consumers are on a spending spree splashing out on anything from mobile phones to designer clothes.

Asian consumers can help sustain fairly robust GDP growth in Asia even if America’s economy takes a dive. Doomsayers say Asia’s growth is export driven and domestic demand in the region is lagging behind. The actual fact is Asia is running a combined current account surplus of over 400 billion implying that its contribution is much more to the world supply than to demand. It is expected if the American demand decreases then the exports from Asia will have a negative effect on economy. This is not the realistic situation as only smaller countries like Taiwan are dependent on their exports to America. India, Japan and China have been driven by growth in domestic demand.

Moreover America is not the only importer. In fact its share of world imports has fallen from 21% to 16% in last 5 years. If America imports less Asia’s GDP growth may slow but not as much as doomsayers predict. A buoyant Asia will also help lift Europe. European exporters are more dependent on Asia than America. European exports to Asia last year were 244 billion euro and during the same period exports to America were 185 billion euro.

According to IMF, Asia is the world’s fastest growing consumer markets in the world. Its total house hold spending will rise by 7% in real terms and that of America by 3%. It is thought of that Asian countries are conservative spenders, but it is not so. From the consumer spending patterns across all Asian countries prove that the domestic demand enables the Asian countries to sustain and like earlier times they are not depend upon exports to countries like America, Canada etc.,

It is not a cause for worry at all that Americans are holding on to their purse strings because Asian consumers are on a spending spree.