From time to time, the International Monetary Fund has been forced to revise its growth projections for the global economy primarily because of difficulties in effectively monitoring developments across the world, especially in relation to the advanced capitalist economies such as the United States and the United Kingdom.
Even though several developing countries, led by the likes of China and India, continue to show significant promise on the growth front, it is still often difficult to gauge the real impact of their performances on global growth when the more powerful economies in the world are under-performing.
The net result of these developments is typically a downward revision of the economic growth forecasts across the globe.
After many years of little growth, the United States’ economy is finally beginning to show signs of strengthening by recording an impressive 2.5% growth rate in the first quarter of 2013. What is particularly interesting in this regard is that this growth performance was weaker than projected but reflected a strong showing in consumer spending.
It has long been argued that the United States’ economy is consumer driven. Over 70% of the size of this massive and wealthy economy is accounted for by consumer spending.
Logically, therefore, by maintaining low tax rates, encouraging investment so that people can be employed, keeping the value of the local dollar fairly steady, and holding inflation down, consumer spending can be increased and that in turn will lead to further growth and development of the economy.
As the evidence reveals time after time, the performance of the United States’ economy is always a benchmark for what happens with respect to the global economy. In short, when the United States’ economy is in recession, global economic performance weakens.
When the United States’ economy is growing, the probability of there being positive global economic growth increases. The reason for this nexus is that the United States undertakes a wide array of economic and financial transactions involving trade and exchanges in goods, services, and investments with a wide cross-section of countries all over the world.
These transactions increase when the United States’ economy is performing well and decline in times of recession.
Hence, the 2.5% economic growth rate recorded in the first three months of the current year can only be seen as a positive sign for the global economy.
This performance by itself will not guarantee a full rebound of the global economy unless a positive growth trend is established and maintained and other leading countries step up to the plate and also turn their economies around to allow them to generate sustained levels of economic growth and development.
Indeed, Caribbean countries that are in urgent need of diversification particularly in relation to export markets for goods as well as services require a booming global economy in which the wealthiest of Nations are able to lead the way forward.
In the absence of such dynamics, it is extremely difficult to imagine how we in the Caribbean will be able to turn our present economic realities around.
It is for this reason that the encouraging first quarter economic growth performance of the United States’ economy has to continue and eventually redound to the benefit of the entire global economy which we in the Caribbean depend on so dearly.
(Dr. Brian Francis, the former Permanent Secretary in the local Ministry of Finance, is a Senior Lecturer in the Department of Economics at the Cave Hill Campus in Bridgetown, Barbados of the University of the West Indies)