Jim O’Neill: Is the Emerging World Still Emerging?
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- Authors: JIM O NEILL
- Published: June 1, 2021
Key findings on past performance
- Without COVID-19, GDP growth in the past decade would have been about 3.6 percent—just below the 3.7 percent experienced in 2000–09.
- Each decade since the 1980s has witnessed stronger economic growth than the 1980s and 1990s, each about 3.3 percent.
- Hundreds of millions of people have been taken out of absolute poverty in part because of the growth led by the so-called emerging markets.
- China’s GDP, in excess of $14 trillion (as of 2019), is more than twice that of the other BRICs in aggregate.
- The combined BRIC economies are now larger than that of the European Union and are approaching the size of the United States.
- For the four BRICs, 2010–20 economic performance:
- India: broadly developing along the path envisioned but has notably disappointed in recent years.
- Brazil and Russia: very disappointing performance; afflicted by the commodity curse and excessive dependence on the world commodity cycle.
- China: ongoing strength suggests it is fully achieving its potential.
BRICs revisited — framing and intent
- The original purpose of coining “BRICs” was to argue for changing the framework for global economic governance, not to assert that these countries would always grow at their theoretical potential.
- Potential growth was defined using standard macroeconomic methodology: real growth determined by workforce size and productivity.
- The BRICs’ large populations and scope for productivity catch-up implied higher potential growth rates than most advanced economies.
- The analysis did not intend to imply persistent growth at potential for all countries.
Growth prospects and determinants going forward
- China’s real GDP growth rate will slow beginning in 2021 because of increasing demographic challenges, yet it is expected to eventually overtake the United States as the world’s biggest economy.
- It will be very hard for the world to get to a real GDP growth rate of 4 percent; even the 3.7 percent of the past two decades could be challenging.
- Four factors will determine whether global growth reaches needed levels:
- productivity in developed economies;
- how quickly China’s growth trend slows;
- the success of India;
- whether other highly populated emerging market economies (e.g., Indonesia, Mexico, Nigeria, Vietnam) get close to their long-term potential.
- If those emerging markets realize their potential, world real GDP growth could better emulate that of the past decade.
Health, pandemic response, and the IMF’s role
- An immediate strong post–COVID-19 recovery almost exclusively depends on developing and distributing vaccines and treatments to eradicate the pandemic.
- Jim O’Neill judges the multiplier benefits of the required $20–$30 billion from donors for vaccine/treatment efforts make it “the biggest no-brainer economic stimulus any generation has had the chance to agree to,” dwarfing potential benefits of 2008–09.
- The IMF should:
- play an active role in encouraging this stimulus;
- enter the arena of health systems and integrate analysis of health spending in its surveillance work;
- align with finance ministers to support the Access to COVID-19 Tools (ACT) Accelerator and expand such efforts.
- Antimicrobial Resistance (AMR) is highlighted as another major health threat:
- AMR could cause as many as 10 million deaths annually by 2050 and, as a result, a cumulative $100 trillion in lost economic opportunity.
- Strengthening links between economics, finance, and health is urged as central to emerging ideas.
Fiscal policy, investment, and financial systems
- In the aftermath of COVID-19, emerging market economies—especially larger ones—must adopt smart fiscal policies that prioritize public investment.
- A new basis is needed to distinguish government investment spending (positive multiplier, should be treated differently) from government consumption spending.
- Tackling climate change and future health threats requires such investment, which is arguably more important for economic growth than financial conditions.
- Stronger domestic financial systems will almost definitely be required to support smarter fiscal policy.
- Continued dependence on a monetary system based on the US dollar complicates emerging markets’ ability to reach growth potential:
- The dollar-based monetary system remains broadly as dominant as in 1982, causing the world to ride the Federal Reserve’s monetary policy cycle and associated global financial conditions.
- As the Fed tightens, financial conditions for emerging markets tighten—often chaotically; as the Fed eases, the reverse happens.
- The monetary system needs to evolve to reflect changing global dynamics; until it does, emerging markets’ ability to reach potential will remain challenging.
Policy recommendations and priorities
- Emerging market nations should:
- be bolder and smarter about public investment priorities, especially in health, education, and climate-related infrastructure;
- diversify economies away from commodity dependence and grow the role of the private sector (notably for Brazil and Russia);
- strengthen domestic financial systems to support investment-led growth.
- The IMF should:
- integrate health spending analysis into surveillance work;
- actively support global vaccine/treatment financing and distribution efforts such as the ACT Accelerator;
- assist emerging markets in designing fiscal frameworks that differentiate investment from consumption.
Jim O’Neill: Is the Emerging World Still Emerging? — F&D Magazine, June 2021
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