Mt. Vernon Register-News


October 19, 2013

America's not in decline, it's on the rise


Emerging economies were the darlings of the past decade, growing at an average of roughly 7 percent annually between 2003 and 2012. By some calculations, China was poised to surpass the United States in GDP by 2016.

Today, the picture couldn’t look more different. Brazil’s growth rate has fallen from more than 7 percent in 2010 to just under 1 percent. Likewise, Indian growth tumbled to about 3 percent in 2012, down from double digits as recently as two years earlier. Perhaps most pronounced, China’s government is revising down its official growth targets. Analysts are no longer asking whether there will be a Chinese economic slowdown but rather how hard the landing will be.

Morgan Stanley has identified five particularly fragile emerging-market currencies: Brazil’s real, India’s rupee, Indonesia’s rupiah, South Africa’s rand and Turkey’s lira. Those countries are vulnerable to high inflation, large deficits, low growth and a downturn in China.

And they may soon face problems in international financing.

The political systems in emerging powers are fraying, too. There have been huge protests in Brazil over wasteful government spending and inadequate social programs. Russia looks more authoritarian by the day. And the Chinese Communist Party is stepping up efforts to crack down on journalists, academics and bloggers in what seems to be an attempt to control the discontent that accompanies slower growth and painful economic reforms.

These “rising powers” are hardly faring better collectively. The international institutions they established — BRICS, the Shanghai Cooperation Organization and IBSA — continue to disappoint.

At the same time, the United States is experiencing a turnaround of fortunes. The unemployment rate has fallen to just over 7 percent from an October 2009 peak of 10 percent. By contrast, euro-zone unemployment remains stuck at around 12 percent.

The U.S. fiscal picture is also looking up. The nonpartisan Congressional Budget Office estimates that the annual budget deficit will drop below $650 billion in 2013, the smallest shortfall since 2008 and approximately half the size it was in 2011. Meanwhile, the dollar remains the world’s top reserve currency.

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