How ‘global’ is this global recession?

16th May 2012

While the Eurozone crisis has been reignited with news that Greece may be forced to exit the euro, its economic growth remains stagnant, at 0%, with the region narrowly escaping sinking into recession.

But in the context of a recession that is purported to be global, the victory is minor.

The future of the Greek economy remains as precarious as ever, and while Francois Hollande's platform promising an end to austerity helped him become France's first Socialist president in 17 years, news that seven members of the eurozone remain in recession serves as a sobering reminder of the problems the region faces.

But while the U.S. and European economies have encountered a series of brutal blows since 2008 – a fact that Western media repeatedly reiterates – data regarding economic growth across other continents paints a very different picture, and defies the notion of a ‘global recession'.

It looks like the with the BRICs, and other countries in South America, Asia, and sub-Saharan Africa demonstrating positive increases in GDP, the question must be asked:

Exactly how "global" is this global recession?

Of course, the global impact of the eurozone crisis should not be underestimated. Earlier this year, the World Bank lowered its global growth forecast for 2012 from 3.4% to 2.5% and warned governments to prepare for a collapse that could rival that of Lehman Brothers in 2008.

Global Macroeconomics Manager Andrew Burns warned the future of the eurozone "would spare no one," spreading from a wealthy epicentre to impact trade, commodity prices and capital flows in developing nations. Burns recommended that developing countries plan for the worst, relying on cuts in public spending and testing of banks to minimise negative impact.

But as Europe struggles to rebound, many of these developing countries remain on their feet.

A look at GDP

A look at the World Bank's chart of GDP growth gives examples of countries with economies that have not merely failed to flounder since 2008 – but, in fact, flourished.

Take China, for instance. An 8.1% expansion in the first three months this year from the same period a year earlier was a clear deceleration from 8.9% growth in the fourth quarter of last year but it could hardly be considered a "hard landing" for the high-flying Chinese economy. China is still registering one of the highest Gross Domestic Product (GDP) growth rates world-wide

And, in fact, countries can make great recoveries from the depths of despair. As Greece debates whether to exit the eurozone in the wake of soaring unemployment and an economy that will be 20% smaller by the end of 2012 than it was five years ago, it has been repeatedly suggested that the country should follow the lead of Argentina.

Argentina – A case study 

The South American nation overcame austerity, IMF bailouts and debt rescheduling following currency strain in the 1990s and, upon adopting its own currency, experienced growth averaging 9% per year between 2003 and 2007.

Whilst Guardian reporter Larry Elliott cautions that Argentina's status as a large commodity producer makes it a potentially faulty comparison for Greece, whose exit from the single-currency eurozone could worsen overall prospects, the former country's economic rebound has shown that recovery is possible.

The success of Argentina in a Western recession with a purportedly global impact is not an isolated incident.

Asian Development Bank President Haruhiko Kuroda said that the eurozone was not expected to result in a negative growth rate across Asian economies. He cites 17 record closing highs since the beginning of the year, rating upgrades, and growing domestic consumption as reasons for the positive outlook.

And the release of the World Economic Situation and Prospects 2012 report this January reveals that countries in North and sub-Saharan Africa alike are likely to improve economic performance whilst wealthier nations remain in a slump.

Libya is projected to experience growth rates of 13.2% in 2012 and 11.5% in 2013, the clear leader in the North. And in 2011, both Eritrea and Ghana experienced double-digit growth of 17.2% and 12.2%, respectively.

In fact, last month Robert Farago of Schroders argued that despite setbacks, including a weak housing market in the U.S. and a possible contagion spread to nations such as Portugal if Greece exits the eurozone, global growth is expected to keep steady.

And many back his case. Metro included a reader letter from Neil Craig this week of Glasgow – he suggests that while focus on the economic progress of wealthier nations should remain a priority, it is disingenuous to suggest that the "global recession" has spread to all nations.

"Outside the European Union, the world is growing at an average of six per cent annually and has been doing so since politicians first coined the term ‘global recession' as an excuse for their mistakes," Craig argued. "What the world's fastest-growing economies have in common is economic freedom and cheap ene
rgy. This formula could get us out of recession and into fast growth."

A wealth of opportunity for investors

However, mainstream media tends to focus almost exclusively on downturns in the U.S. and Europe – to the exclusion of upswings across Asia, Africa, and South America.

So while investors remain nervous of placing their money in, say, Europe, there is a wealth of opportunities to consider given the strength of other countries' economic growth.

 

More on Mindful Money:

The problem with GDP

The worst recovery in history

Upside down economics – morality before greed

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