Global Economic Instability: Out of the Wood?

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14.07.2009 17:12
nestabilnost1.jpg  Artyom Ustimenko
Within the last month a number of economists stated that the Peak of eco­nomic recession has been Passed already. Well, actually, stock markets have revived significantly over may of the current year, a series of big global financial institutions has shoWn consolidation signs, and oil Price being an indirect index of economic activity has beaten more than semian­nual record. but, it is quite Possible that all those indexes may be of tem­Porary character, and recession is able to take W shaPe fraught With the further activation of recessionary events.
Though there was observed global revival of stock markets, among series of other signs of situation stabilization, it is worthwhile to consider that changes for better are not of fundamental natureas yet. The whole set of problems generated during existence of bubble economy, in fnancial sector especially, is hardly to be resolved during that short period of time.
Probability of prolonged economic depression which may take the W shape is still the key problem. This means that global economy is in position to face sudden cyclic changes of economic trend in foreseeable future, with alternation of short-term upturns with the further activation of recessionary events. As consequence, May upturn could exactly be one of those cyclic changes. Throughout the past decades, majority of economic crises were noted for their V shape. But current economic recession “is based” on inability of macroeconomic concepts which were included into inventory during the bonanza period of economic liberalism, not on regional preconditions or imbalance of limited branches of economy, like Asian Financial Crisis in 1998 or dot-com crisis in 2001.
In the absence of clear conceptual tools for surmounting the crisis and further sustainable economic growth, probability of stagnant, recessionary phenomena in global economy unluckily remains one of most expectable development scenarios.
Even in the case of actual passage of recessionary trough in the second quarter of the current year that was forecasted in principle by the Analytical group of KazEnergy magazine the global economy may appear in zone of long-term economic uncertainty accompanied with cyclic microcrises over the period of the years 2009-2011.

Sagging Global Economy
According to the most optimistic forecasts, of the World Bank group in particular, world GDP at the end of 2009 reduced for 1.7% for the frst time in 60 years. In case of economic depression scenario, world GDP fall may reach 3.2-3.7%, so recovery of positive rate of growth may expand for coming 5-7 quarters. In this context the greatest concerns are again caused by banking and fnancial sector exactly, both of national and transnational character. Notwithstanding support of states, it accumulated extremely high complex of risks which started in hyperinvestment of economy, signifcant revaluation of assets and speculative doing of banking and fnancial business, especially in the feld of investment banking.
It is worthwhile to agree with experts supposing special susceptibility of banking and fnancial sector to repeated deterioration of its status. In the view of its infuence on the other branches of economy, this fact appears to be extremely unfavorable for their recovery.
Situation with leading world economies (USA, EC, Japan) remains tangled and is far from fnal stabilization. It is important to note that not merely relations at the national level, but also transnational economic relations are affected deeply, world commerce primarily which is in deep recession. Notwithstanding measures taken for stabilization of the situation, their substantial part is of the declarative character and has no needed effect on economy. Supposedly, China stands just apart, but economic trends of this country are also rather contradictory.
Results of economic progress in USA, EC and Japan rather fairly refect negative processes existing in economy globally. Particularly, USA remains the country especially heavily affected by the economic recession. It is remainder that in the frst quarter of the current year the GDP of USA fell 6.1% instead of forecasted 4.7%, in the forth quarter of the year 2008 –6.2%. According to the data of Bloomberg agency, the last similar fall of key macroeconomic indicator was fxed in 1957-1958. In the second quarter of 2009 the GDP fall will appearingly be analogous, within the limits of 5.8-6.3%. At the same time the worst factors over the past decades are shown by indicators like unemployment rate and overall living standard. GDP in Eurozone has reduced for 2.5% within the frst quarter of 2009, thereat EC GDP fell 2.7%. Therewith German economic situation being the largest in EC is much the worse. In the frst quarter German GDP fell 3.8% that was slightly compensated by relatively slow decline rates of GDP of France – 1.2% in quarterly terms. Revealingly, that Latvia is one of the record-breakers of GDP fall in EC, GDP of which fell 29%. Japan suffering permanent economic diffculties after termination of its “economic miracle” in 1990s, bears heavily the current crisis. If in the forth quarter of the past year the country GDP fell 3.3%, then its slowdown in the frst quarter of 2009 was 4%. In summary, on results of the frst quarter, GDP reduced for 15.2% in annualized terms that is the maximum value since 1955. Considered all, the present recession is already peak in its depth, but it merely met its trough at the best case.
Drawing analogies with the Great Depression is rather disputable, as two observed times of crisis are based mostly on different drivers and preconditions, which as a consequence determine different approaches to their recovery. If the Great Depression was frst of all a consequence of overproduction of commodities and services, then the present economic crisis has been inspired by imbalances generated by bubble economy, especially in the context of creating of so-called “artifcial” money and assets.

Free Market – the Age Runs Low?
Practically generalized disappointment in export-oriented concept of nation economic development becomes the visible intermediate total of continuing depression. The concept which several years ago was considered to be far more effcient than domestic demand orientation, becomes the key problem for leading world economies under crisis conditions. But those countries which are the most open from the point of view of participation in international commerce suffered to the utmost from the effect of traced economic recession.
Actually, during the long time the sustainable economic growth of leading national economies had been largely provided due to priority development of export industries. In the context of continuous transnational commerce expansion that took place nearly without remarkable reduction after the collapse of bipolar system, export and external demand orientation were reasonably assessed as an ideal version of macroeconomic model. But viability of this model was not approved in long-term practice, whereas sustainable growth of global demand and transnational commerce were faultily assessed as “an evidential” fact.
Collapse of global demand in connection with current economic recession raised the while complex of system problems to export-oriented economies, which they were not able to resolve using their own resources. Dependency from one another was not considered as an advantage but as constraining element of antirecession policy, the basis of which is exactly protectionism unfalling within the frames of global free market.
Fast economy reorientation to domestic demand which may slightly compensate external risks is impossible, and in some cases (Singapore, Thailand, etc.) is impossible in principle, as the receptive domestic sales area is absent in that case.
But it is possible that the present crisis will make countries refer more cautiously to promiscuous application of practices of export development orientation. Particularly, China has already started scale turn to domestic consumption priority, using the beneft of its demographic potential. Western world being gradually disappointed in «laissez faire» economic model, will hardly advocate free market jealously which had primarily been of geopolitical interest for it. It is possible that crisis became a beginning of new era of trade wars, protectionism and economic autarky.
Alteration of Global Economic Impact
Current crisis will certainly lead to accelerated alteration of economic impact poles. If earlier it was forecasted that this process will last for extended period,   the near 20 years, then even now we could say that canonical centres of economic attraction, USA and EC frst of all, are rapidly ceasing their position
as economic leaders.
The West becomes dependent on remaining world; it is for the frst time when USA and EC share the role of “anti-recessionary manager” with other major countries that could hardly be supposed several years ago. Interestingly, the world stopped being geared to western economic development model based on radical-liberal “approach”. It lost lion’s share of other countries appeal having shown availability of leading defects in its structure. The West is risking ceasing its economic superiority, if it loses its ideological superiority on a global basis.
The post-recessionary world will be multipolar economically in the proper sense of this word. It is unlikely that the process may be halted, although it will not appear per saltum. Meanwhile it is not referred to that USA and EC will lose position of important components of global economic order, but their ability to moderate global economic processes will not be monopolistic any more. Prior to the crisis USA and EC had still been inarguable poles of global economic attraction. Though there were opinions of their weakening, but they had mostly been an oratory directed to indefnite future. Exaltation of new economic states was valued as incomplete, their economic security – as overvalued.
The world historically assumes a new similitude exactly in the period of huge collapses. Economic recession brings into the foreground the following new economic leaders – China, India, Brazil, a number of other countries considering themselves as parties of global economic order equivalent to USA and EC. Potentially they are leaders with their own ambition which will make efforts to strengthen them, inclusive of use canonical centres of economic attraction.
The fast extrication of global economy from the crisis and its further development will depend on those new economic leaders. The West is intrigued this by the popular verse: «In 1989 capitalism saved China. In 2009 China will save capitalism» and it is undoubtedly valid for all new economic states.