Today’s global economic news bears little resemblance to that of only a decade ago. A pervasive global economic recession is now stumbling through its fourth year. The Baltic Dry Index, one of the more reliable and well-respected global indicators of international trade, dropped precipitously in late 20008. Despite a handful of heartening spikes in international bulk shipping volume in the summer of 2010, the BDI has retreated to levels comparable to those of December 2008 over the course of the 2011 fiscal year.
Occasional rallies in stock markets are far outpaced by actual or impending implosions of national economies in nightly economic news updates. Surprisingly, these have become more frequent in Western economies as financial might migrates to the vibrant economies of India, China and their neighbours.
Asia’s dominant economies appear to be mostly immune to the economic woes dogging Europe and North America. Industrial production, while at somewhat lower levels than five years ago, outstrips that of the West. One of the major contributors to this relative economic health is the region’s proximity to the oil-producing nations of the Middle East.
While global energy costs are on the verge of a major upward jump, thriving Asian economies are well-positioned to take advantage of lower transportation-in costs because of shorter distribution distances.
On the other hand, lacklustre industrial output and longer shipping distances put the Western economies at a distinct disadvantage relative to petroleum and natural gas pricing. While the American fall from grace in particular had many contributing factors, rising energy costs may well be the most significant economic hobble restricting its stride.
Hard on the heels of sputtering American economic might is the US dollar’s declining dominance as the international reserve currency. The euro, once seen as the heir apparent to the dollar, has experienced reversals in the wake of several European Union members’ banking systems melting down.
China began advocating for the expansion of the International Monetary Fund’s Special Drawing Rights more than two years ago during the global economic downturn. Subsequently, Russia has taken up the chant in favour of a similar global currency.
The interconnected international financial systems present a classic dilemma fraught with dangers as well as opportunities. International reinsurers have seen their risk exposures climb in recent years even as their cash reserves and return on investments have shrunk. In turn, international banking has been in constant turmoil since the meltdown of 2008, subsequent national defaults in a few European countries, and ominous problems in the U.S.
Consequently, insurers and bankers alike are risk averse. In particular, international credit markets remain tight in comparison to 10 years ago, placing a subtle stranglehold on economic expansion.
“Is the global economy in an expanding or contracting state?” requires the Zen-like answer of “yes.”
The East seems to be heading toward strong growth even in the face of rising energy prices. With a strong international trading position, China and India in particular are enjoying an economic expansion. The West is likely to stay in a bearish mode for several years.
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