Good economic news amid the gloom

Recent news was that China’s annual growth rate has dropped below the red line of 7 per cent. It is 6.9 per cent and probably falling.

These figures were published shortly after the IMF said that sub-Saharan Africa is experiencing “solid growth”.

Last week the World Bank released its new average annual growth estimates for black Africa. It was 4.5 per cent last year, but this year it is going up to 4.6 per cent and by 2017 it will be 5.1 per cent.

This is less than the 5.3 per cent before the great recession (precipitated by American banks), but considering all its recent knocks, not least China buying fewer raw materials, Africa is holding up pretty well.

In fact, what we used to call the “Third World” is a mixed bag of good and bad news.

Here is more bad news: emerging markets face falling growth rates for the sixth consecutive year.

Currencies have hit 15-year lows. Stocks, once soaring ahead of developed countries, have been flat for the last six years.

Private sector debt has been increasing fast.

The outflow of funds has accelerated and in the last year was over $1 trillion.

Stock market and currency turbulence have raised questions about where China is going.

Former French president Charles de Gaulle once quipped about Brazil: “Brazil has a great future, and always will.”

Maybe he should have said that about China.

In Brazil, a big corruption scandal, including allegations that the government has illegally manipulated its fiscal accounts, has contributed to stalling the economy.

In India, despite many campaign promises, Prime Minister Narendra Modi has not succeeded in opening the economic spigot. In fact, the present-day rise in growth owes itself largely to measures put in place by the previous government of prime minister Manmohan Singh.

In Indonesia, the economy has slowed to levels not seen since 2009.

In Turkey, a dictatorial president making mistake after mistake has made it difficult to halt the slide in the economy.

Looking back, those who assumed that there would only be sunny skies made a big mistake.

As Yale Professor Jeffrey Garten says, “in the 1990s too many projections were straight-lined from the outsized performance of emerging markets over several years. These projections were based on a period that included a phenomenal business expansion in the US with policy makers closing their eyes to the rickety foundations of the big banks, exceptional optimism about the economy in the European Union without foreseeing the euro crisis and China’s take off that included its voracious appetite for the commodities that other emerging markets exported but which could not last”.

All the benign projections were wrong.

Now for good news: First is the dramatic fall in extreme poverty over the last 50 years, from 50 per cent of the world to 10 per cent today.

Second is the rise of billions of people into the middle class and the move of billions from the countryside to the towns, where there are far greater opportunities for individual advancement.

Third come the dramatic improvements in public health and education; the latter continued to advance despite the setbacks in growth.

Even in this time of recession and economic mismanagement, Brazil’s external debt as a percentage of GDP is less than half of what it used to be in 2002 and its reserves as a percentage of its debt are more than four times what they were in 2002.

Mexico, South Korea, India and Indonesia are in the same good position.

Foreign investment in emerging economies increased tenfold between 2005 and 2014, about 30 per cent faster than it did in the advanced nations.

All these countries are positioned well enough to fend off further global turmoil.

The good news abounds.

Twenty years ago, who would have guessed that India’s Tata Group would be the largest private-sector employer in the UK or that Mexican companies Cemex and Bimbo would become the US’ market leaders in cement production and bread making, or that the Chinese Lenovo would be on a par with Hewlett-Packard as the world’s largest seller of personal computers?

Who would have guessed that the share of the developing world’s companies in Fortune’s Global 500 list would rise from 5 per cent to 26 per cent in the span of 13 years?

And the good news could continue: India reaching a growth rate of 10 per cent (which it briefly did under Singh) and keeping it going; Brazil sorting itself out, which, with its stable institutions and non-violent political culture, it should be able to do; and the US unleashing its potential if the Republicans would give President Barack Obama leeway to be more Keynesian.

China will continue to slow down, but Europe should speed up.

We could also see a significant decline in African poverty and many countries doing far better than the continent’s average. A good number will grow at a handsome 7 per cent, fingers crossed.