Sunday, June 27, 2010

Future of World Economy

Part 1

10 years ago, 80% of world wealth was produced by the developed world, viz. North America and EU. In 2010, scenario has changed 75% of world wealth is now produced emerging economies. Among emerging economies BRIC is the building block of ‘The Change’ in the economic pattern in past decade and the forthcoming decades. BRIC (Brazil, Russia, India & China) is growing like anything. These emerging economies have their own features which distinguishes it from other. And these features are responsible for theirs’ own sustainable growth. By virtue of this growth, there is a demand for these economies to have a commanding voice in International financial agencies like the World Bank and the IMF.

The developed economies themselves are in a recovery mode. Reforms are there everywhere. Europe is undergoing a phase of cuts and high taxes to reduce their liabilities. Greece and Spain are under crisis. Great Britain has also induced toughest economic reforms to avoid being another Greece or Spain. Euro may be split in future, as Robust economies (France, Germany, etc) in Euro Zone wants to avoid economic dangers from weaker economies in Euro Zone (like Greece, Spain, EU members from Eastern Europe)

According to UN Sec Gen, Mr. Ban Ki Moon (In World Global Summit, a CNBC show), vision of United Nations is to create 420 Million new Jobs by 2015 for the sustainable world economic growth. Around that much of job had been lost by the global recession last year. Flow of money from developed economies will be directed towards developing economies. This flow of money will be in the form of investments to set up new ventures in such areas. Emerging economies like BRIC, will be the direct beneficiaries. There will be changes and economic reforms all over in the coming years. Emerging economies are poised to deliver financial recovery in coming years to follow.

Now the question is what are the unique features of BRIC economies which is making them performers and gradually evolving policy makers of the world economy. India has itself a vast potential consumer base. It has a potential to sustain in deeper recessions only by serving the demands of their domestic consumption. India had been eyed as a market of interest for many. And hence, India is witnessing FDIs. Political instability had been a blockade of economic growth in India. Now it doesn’t seems. China has a potential for its huge manufacturing base, which is delivering to every continent. Chinese policy disallows money invested in its land to go out for a certain period of time. This is resulting in higher purchasing power of its people and hence strengthening their demands by theirs’ domestic consumptions. Similarly Brazil is a manufacturer for the world and witnessing economic prosperity with an influx of foreign investments on its land. Russia so far known as an economy based on its raw material resources has now opened its arm to the world to diversify their economy. Now Russia will no longer dependent on its Coal, oil and Natural gas supplies to the Europe. Indeed, Russia is on a way to be an economic supreme by investing in other industries like the new Silicon Valley. Russian Silicon Valley will definitely bring a revolution to the world economy. They are going techie and will produce value addition of Russian creativity.

Wealth is like energy. Neither created nor destroyed. If any country will print extra currency bills it will increase purchasing power of people, raise demand for commodities, reduce monetary value and hence inflation. Therefore, the gross Global wealth is constant. Now the emerging economies have started taking bigger shares of this wealth every year. China and Brazil majorly catering to the consumption of the globe, BRIC economies extracting the natural resources are pulling the flow of wealth towards their respective regions. The European economies by virtue of their consumption more than production have witnessed the debt crisis. Now, they are focusing on the cuts and reducing social liability to balance out the difference between consumption and production. In the past decade flow of wealth is shifted.

Loss of some is the gain of others. BRIC is enjoying a prosperous growth rate by virtue of this. World economy is progressing towards a balancing equilibrium, already developed economies loosing and developing one grabbing. But, how long this will continue?

If we analyze the economic history, after the industrial revolution post renaissance; current developed economies created wealth for themselves by manufacturing of goods on a larger scale. With the economies growing and labor cost becoming higher, they began outsourcing from several developing locations worldwide. These economies became developed because of manufacturing. Now USA is also targeting to further invest in the manufacturing sector. If the invest in manufacturing will go high, BRIC can witness a reduction in the demands for the supply from their respective regions. This is going to be a way ahead of future scenario. Because in present World of West, the production cost will be really high. To start a manufacturing based economy, they first have to go that low to meet the sustainable requirements of a manufacturing based economy.

To secure wealth, Intellectual Property is one such means. With the globalization, technology is no more one economy’s advantage. Now, everyone has an access to it. Success of BRIC lies over here. They are prospering because of the technology they got shared by west, and development of their own indigenous method which got acceptance of worldwide consumption. Mainly China, Chinese goods are made for worldwide consumption. China is now doing both outsourcing and exports.

Information Technology had been an Indian success story. Mainly an outsourcing of skills, Industries growing all around the world require a support of Information Technology, and now these support services have become a major contributor to Indian GDP. India is also a diversified economy. The green revolution of 60s, has not only made India self sufficient but also supplying to the demand outside.

End of Part 1

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