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Nov 28, 2013

Economic policy makers seeking successful models to emulate apparently have an abundance of choices nowadays. Led by China, scores of emerging and developing countries have registered record-high growth rates over recent decades, setting precedents for others to follow. 

While advanced economies have performed far worse, there are notable exceptions, such as Germany and Sweden. "Do as we do," these countries' leaders often say, "and you will prosper, too."

 

Look more closely, however, and you will discover that these countries' vaunted growth models cannot possibly be replicated everywhere, because they rely on large external surpluses to stimulate the tradable sector and the rest of the economy. Sweden's current-account surplus has averaged above a whopping seven per cent of GDP over the last decade; Germany's has averaged close to six per cent during the same period.

China's large external surplus – above 10 per cent of GDP in 2007 – has narrowed significantly in recent years, with the trade imbalance falling to about 2.5 per cent of GDP. As the surplus came down, so did the economy's growth rate – indeed, almost point for point. 

To be sure, China's annual growth remains comparatively high, at above 7 per cent. But growth at this level reflects an unprecedented – and unsustainable – rise in domestic investment to nearly 50 per cent of GDP. When investment returns to normal levels, economic growth will slow further.

 

Source:  Corliss Online Group Financial magazine

Visibility: Everyone
Posted: Thursday November 28, 2013, 11:08 pm
Tags: group magazine the of models real economy global role online financial Corliss [add/edit tags]

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