All articles by Gerard Lyons
Gerard Lyons
Asking the right questions about China
If you ask the wrong question, you may get the wrong answer. In economics and politics, it seems that all too often the wrong question is asked. Across Europe, for instance, too few are asking the key question about where growth is going to come from. Across Asia and large parts of the Middle East and Africa, meanwhile, the key issue for business is China. But what is the key question that should be asked? The question financial markets are asking is whether it is going to be a hard or a soft landing. In my view, a soft-landing is where growth slows gradually to around 6% or so.
Divided after all these years
So far, 2012 has provided further evidence of a divided and disconnected world economy that faces major policy dilemmas. Europe is imploding, the UK is contracting, the US is stagnating and, while Asia is cooling, it at least has the policy tools to be able to rebound. The global economy has slowed significantly, from a healthy, policy-induced growth rate of 4.2% in 2010 to a much cooler 3.0% growth last year. This year, global growth may be only 2.6%. This masks considerable differences but, as we have seen in recent years, globalisation means no region of the world is completely immune to problems in the West. The good news is that, helped by policy stimulus, emerging economies, led by China, may see some pick-up into 2013. The trouble is many economies in the West are running out of policy tools to be able to respond with if they are hit by another shock. Hence, it is easy to construct a perfect storm scenario for 2013, in which a combination of problems comes together and things get worse.