Review and Outlook
The world economy in 2012
By George Orwel
After setting on a dreadful 2011, the sun came up in January with signs of better days, at least outside debt-burdened Europe. The United States is finally adding jobs and the housing market is improving but the fiscal deficit is worse off. Signs of moderate growth mean the U.S. Federal Reserve will be less likely to print more money, which could spur global growth.
In 2011, U.S. money printing helped to drive up oil and commodity prices, spurring inflation in Africa, the Caribbean and other emerging and frontier economies. Soaring prices of food and other basic goods stunted growth in these economies, whose biggest challenge now is how to shift from inflation to sustaining growth as Europe imports less and investors balk at sending capital in their direction. Lower prices of commodities would allow these countries to ease their monetary policies, leading to more rapid growth in consumer spending. That’s important because the world needs emerging economies to grow and lift underperforming mature economies by buying their goods and services.
The investment outlook is generally good for Africa and even better for the Caribbean. South Africa, Africa’s largest economy and a stepping stone for investment in the continent, ranks No. 1 worldwide for its regulation of securities exchanges and No. 2 behind Canada for the soundness of its banks. It’s also one of the easiest places for a firm to raise money by issuing shares, according to the World Economic Forum. However, it has some of the world’s most rigid labor laws, one of the least productive workforces and a broken school system that doesn’t produce great technical skills. President Jacob Zuma is expected to win his party leadership election this year and stay on as national president until 2019, but likely will not upset his left-leaning allies with pro-business reforms. In Nigeria, Africa’s second-largest economy, authorities scrapped fuel subsidies on New Year’s Day to save the Treasury more than $6.13 billion.
Nigeria produces more than 2 million barrels per day of crude oil, but a lack of investment in domestic refineries and infrastructure means almost all of this is exported, while refined products such as gasoline and jet fuel have to be imported at higher costs. Finance Minister Ngozi Okonjo-Iweala says letting markets determine the pump price of petrol will push up the price. The government has said that any increase in the cost of goods will be offset in the medium term by economic reforms, including more efficient customs clearance at ports, which should reduce the cost of imports. Such a move will also attract more investment to the oil sector. In Kenya, retail fuel prices are expected to fall after a review by the country’s energy regulator, suggesting inflation may have peaked.
In the Caribbean, Jamaica’s main opposition party rode a wave of economic discontent to a big win at the polls the week after Christmas, sweeping former Prime Minister Portia Simpson-Miller back into office. Simpson-Miller pledged growth and development with job creation, but also alluded to the nation’s huge debt burden and possible new austerity measures under a $1.27 billion bailout agreement with the International Monetary Fund. Analysts say she doesn’t have much room to maneuver as Jamaica’s public debt load totals more than 120 percent of gross domestic product and unemployment has risen to about 13 percent from just under 10 in 2007. Simpson-Miller did not spell out any belt-tightening or other economic measures in her long victory speech, but she has vowed to appeal to the IMF to extend the period Jamaica has to repay loans, giving it more leeway to jump-start the economy.
Ratings agency Moody’s Investors Services cheered Trinidad and Tobago’s economic performance. The country’s $25,705 per capita GDP is double that of bigger and supposedly prosperous countries and it has a current account surplus that’s the envy of other nations. Still, its ratings are limited by concerns about growth prospects. Its GDP grew 9 percent between 2004 and 2008, but has not moved above 2.5 percent since the 2008 global recession, reflecting the slowing pace of energy investment.