Global economy: A worldwide supercycle bringing sustained high economic growth sounds either spurious or something to know about before being left behind. In Standard Chartered's view, we've been in a supercycle since 2000, in a decade that for many in the West has ended with a far from super fight against deflation. Yet the supercycle idea is one that still deserves to be taken seriously.
Western ideas of capitalism and free trade are flowering in previously unproductive soil, especially in Asia. The impact is already huge and will keep being felt.
The transformation is easily seen. China has become the world's second largest economy but the country's scope to advance further remains substantial. Chinese GDP per capita, at just $4,283 in 2010, is less than one-tenth of the US figure of $47,132. Chinese consumers are going to get wealthier and consume a lot more. And China is representative of the trends in India and other emerging economies – which are on course to add a couple of billion more middle class consumers to the world over the next two decades. Herein lies opportunity. The east has grown by selling to the West. The West's chance to return the favour is at hand.
Moreover, without emerging-market growth the Great Recession of the past three years would have been much worse. The growth, and the inflation in global commodities and food prices that emerging economies have helped to stoke, has eased the West's battle with deflation.
That said, there is a risk that demand for raw materials and commodities will soar, adding to commodity and food price pressures, as western economies recover from their credit bubble-induced hangovers and grow more quickly. It is, to a considerable degree, a phenomenon we are already witnessing.
Governments should also consider another risk. In the past two decades China’s export-led growth and surplus savings helped make capital cheap for western economies - and that may have helped get the West into trouble by encouraging fiscal profligacy and stock and housing bubbles. But if emerging economies invest heavily in new infrastructure and also consume more, their demand for capital will rise. That, as McKinsey warns in a recent report, means global long-term interest rates could rise.
Western governments therefore cannot afford to be complacent about their fiscal deficits and debt. Servicing costs may rise. Japan, too, should be concerned. Nor, as we have seen, is the new multi-engine global economy immune to bubbles, busts and recessions that will also test the ageing West’s finances.
Overall, however, the supercycle message is an encouraging one. Prevailing western ideas of free trade and commerce have helped lift many millions of people from poverty — and is now bringing them the comforts of prosperity. For that everyone should be thankful.
