16 September 2009
Survey: World Must Adjust Growth Expectations
Reversing growth policies in Asia will take time
Michael Pettis
Senior associate, Carnegie Endowment for International Peace and
Finance professor, Peking University’s Guanghua School of Management
August 28
Washington is in the driver’s seat. In the short term nothing can replace U.S. consumption except renewed U.S. consumption, and without it the world must adjust. But for the U.S., the adjustment can be benign.
If investment grows and the trade deficit declines, growth in U.S. production can comfortably exceed growth in U.S. consumption over the medium term. If Washington enacts measures that encourage more saving and investment, the medium- and long-term consequences of the crisis will actually be good for the U.S.
For China and other Asian countries whose development models relied on generating trade surpluses, the adjustment will be difficult. If U.S. consumption growth slows, and since it will be almost impossible for Europe and Japan to make up the difference, their [Europe and Japan] own growth will be limited over the medium term to growth in domestic consumption. But their development policies over the past two or three decades were designed to constrain consumption and subsidize producers, the consequence of which was high growth and excess dependence on exports.
It will be difficult to reverse these policies in order to generate the kind of domestic consumption growth Asia needs. Unless Americans return to the high spending days of yore, the high Asian growth rates of the past three decades are almost certainly behind us.
See also Michael Pettis’ blog, China Financial Markets.
