Interview Part 1
Global Economic Outlook 2011
Opportunities and Risks
1. What is the status of the global economic recovery?
2010 was a year of uneven global recovery. The good news is that
the global trade has recovered, and will likely continue to do so. The bad news is that
the real estate, consumer credit and sovereign debt problems in the world's
largest economies are yet to be solved. About 22 countries, including several
EU-member states, requested IMF's help in 2010. As expected, technically, the
recession has ended in the US and we saw a modest GDP growth, however, in my opinion,
real economic recovery is measured along with a growth of employment. The good
news is that the rate of unemployment has slowed down significantly, but it will
take a long to recover to the pre-crisis levels. My concern is that this
growth was fueled mainly by government debt spending, bailouts, banking
accounting manipulations and massive money printing. The price of such recovery
will have to be paid in the coming years with interest putting more pressure on
higher taxes and inflation, thus reducing the budget for socioeconomic
development and real economic growth
Economies that have high
Debt-to-GDP ratio with high budget, trade and investment deficits will continue
to struggle and will suffer even more if they do not reform soon. The list of
economies includes the US, UK, Spain, Italy, Portugal, Ireland, Greece, Iceland,
Latvia and others. On the other hand, China, India, Australia, Brazil, and the
GCC weathered the storm much better than the US and Europe.
The question for 2011 is
how resilient is the recovery? In general, I believe it is positive, but not
without geopolitical and domestic policy risks. There are more default and
currency risks in US and Europe and more asset bubbles and inflation risks in
In general, I see the world economy growing 1 to 2 % from
about USD 62 Trillion in 2010 to USD 64 Trillion in 2011. However, the
distribution of that growth will be uneven; the emerging economies, which
represent about 30% of the global GDP, will contribute about 70% of that growth.
Oil exporting countries, China, India and most of Asian countries are set to
experience strong domestic demand in 2011, driven by private consumption and
infrastructure spending. I'm more optimistic about eastern economies and less
about the West.
2. Why have some countries recovered faster than others?
There are several factors, but the most important is that
countries that have strong pre-crisis macroeconomic metrics, rich natural
resources and export-based industries have stronger recovery prospects. Strong budgets allow the government to stimulate the
economy with less debt burden. Exports play a significant role in supporting
a stable interest rate and exchange rates, thus renewing investors' confidence
The main difference in the speed of recovery between Argentina in post-2001 and Thailand in
post-1997 crises is the exports. Fiscal discipline is necessary, but not
sufficient without export-driven economic growth. Too much debt can result in
prolonged stagnation similar to the Japanese lost-decade of 1990s. With
inflation risk on the rise, we could see more socioeconomic troubles and
political unrest in economies with thin middle class. 2011-2012 will be
challenging for many policy makers.
3. What is your economic outlook for China and India?
2011 will be a year of continued growth. China continues to lead the global market in
while India leads in outsourced services and both are working hard on closing the innovation gap
with the US and Europe. China will soon surpass the US as the world leading
manufacturer after surpassing Japan as the world's second largest economy. The pool of low-cost English speaking and educated talent
has proven and will continue to prove as the most valuable asset of India. It is
also a valuable asset for global businesses and investors. There is still long
way to go to become on par with the US standards of living, but I'm positive
about their future. Chinese and Indian expats in the US, EU and GCC are effective socioeconomic
ambassadors promoting the interests of their countries. The rise of the middle class will
help lift more people from the poverty layer.
As for the economic risks, inflation, currency wars, and
geopolitical conflicts are the risks to watch. The most important policy
issue is not to get distracted by conflicts with neighboring countries and
on domestic economic development and global competitiveness. Higher energy costs
and food inflation can be very challenging to China, India and other emerging
4. What are the risks for the global economic recovery?
The US economy is the number one risk for the global economy.
Since it is the world's largest economy and investment fund, any setback in its
recovery will affect the rest of the world. The current recovery
is linked to a host of challenges, including a fragile state of the banks,
poor public finances, the impact of fiscal tightening on growth, wrong tax
policies and the negative consequences of policy-making driven by populist
domestic agendas, such as the voting blocs protecting social security and
certain lobbies enacting policies on the expense of the rest of the population.
EU debt crisis has not been resolved yet. I would also watch
for wrong monetary policies leading to currency wars and political unrest in
weaker economies due to rising inflation.
Other risks include geopolitical events such as a US or Israeli war with Iran
that could damage oil production facilities in GCC countries, thus limiting the
global oil supply and raising energy prices. A significant hike in energy prices
could send the US and the world into a deep recession. War with North
Korea could also hurt the Asian economies significantly.
While these risks can be mitigated, one can never rule them out. When
one tries to forecast the future, one cannot
underestimate the impact of policy decisions. With this disclaimer in mind,
all key decisions and trends remain the same and with the absence of any major
negative event, the outcome is as follows: US, UK, and Europe will continue
to go through a period of a correction and at some point these countries will have
to go through austerity and/or higher taxation.
Risks are not limited to
the West. Excessive capital inflows plus domestic inflation pressures are
already creating policy challenges across some emerging economies. Inflation
could lead to unrests in many countries, but it would be felt the most in
emerging countries. China and Asia will have to act to prevent the emerging
financial bubbles. Overheating investments, prices and fears will test policy
makers in each country. My view is that mistakes will be made, but the global
economy will overcome these
challenges and the recovery will continue in the short term.
5. Do you still foresee another global economic crisis to
follow the 2008-2009 crisis?
Unfortunately, the answer is yes. It might not be in the short
term, but macroeconomic indicators and trends show that we are heading in that direction. All
things remaining the same, we could see another crisis within the next five years or so. I'm especially
concerned about the US and the EU. Debt-laden countries such as Greece, UK and
Ireland and Latvia started to suffer, other countries could follow soon. A
crisis in Spain would constitute a greater challenge for EU policy makers
because the Spanish economy makes up 12% of euro-area GDP, which is close to
double of Greece, Ireland and Portugal combined. In addition to debt and
inflation problems, the EU still has challenges with aging and lower population growth.
The ongoing costs of supporting an aging population and the law of diminishing
returns will cause more burdens on the EU.
There is a real risk that the US economy could enter another crisis driven by
cost of the bailout and the misallocated stimulus funds, the continued deficit
spending and the much less publicized social security, public pensions, Medicaid
and Medicare debts that place the real uncalculated Debt-to-GDP ratio at about
700% as opposed to the official debt number of about 90%, and that is not counting the
individual states' debt. The impact of the upcoming increase in direct and
indirect taxes to fund wrong economic policies will result in reduced disposable
income and consumer spending; add to that the existing large consumer debt, the
burden of aging baby boomers and increased welfare spending. All of these issues
pose a real risk for another economic and currency crisis.
6. Seems that the US government cannot fight the current
economic crisis. Is that correct?
The US government alone cannot get us out of this crisis. It
appears to me that the current policy makers are suffering from the
gambler's syndrome. They keep spending more money hoping that they will
eventually win. More debt spending is a receipt for bankruptcy. Real economic growth comes from
private sector investments, not from massive debt spending followed by tax
increases or currency devaluation. The problem is that current GDP recovery
numbers are driven primarily by government debt-funded spending rather than by private sector
productivity improvements and exports.
The other problem is that Government
spending is more than 40% of US GDP. When government spending slows down
(and it will slow down) to try to balance the budget and avoid a currency crisis,
the private sector and the economy will be impacted significantly.
Unfortunately, what hits the US economy will impact the world and we could
experience another global crisis.
With all policies remaining the same, there are two
possible scenarios: either another sharp correction (crisis) in the next five years
with quick recovery or a prolonged stagnation period similar to Japan's lost
Countries that have high Debt-to-GDP ratios and follow the same
US economic policies will be hurt the most. This includes Japan and some EU countries in
particular Italy, Spain, Portugal, Greece, Ireland, Latvia and some other
countries. In Latin America, Mexico and Central America are more
vulnerable due to their strong dependency on the US economy. Add to that the long-term negative demographic trend. Over the next 50 years, the US labor force is projected
to grow at a slower rate. As a result, there are concerns about the future growth of
the U.S. economy. Despite the aging of the baby-boomers, the U.S. labor force is in
a better position than most countries in Europe and East Asia. Japan, for example, is projected to
see a 6% drop in its labor force by 2020.
7. This looks very bad for the US economy. Is there a way out
of the crisis?
It is not all bad news, on the upside, the factors that are
in favor of the US economy include the private sector innovations that brings
export revenues, attracting foreign investments to undervalued assets, and the lack of
governance and transparency in emerging markets makes US a safer investment
One main reason the US has been able to prevent the currency and
the economy from collapsing, despite the latest wars, huge debt and
massive currency printing, is because the dollar is the de-facto standard for
international trade and reserve currency.
Despite recent proposals to establish an alternative
international currency by the IMF and World Bank, and despite the support for the
proposal by China, Brazil, and Russia, not many politicians have the will to push harder for
an alternative international currency. The US is running on the
goodwill of the previous decades. Once the dollar is replaced with a basket of
international currencies, the US economy could crash, especially if the
government does not stop its debt spending or fails to go back to healthy
production-based growth and investments.
What scares me the most is the
unpublicized rising level of stress and distrust in the relationship between US
and other countries. If China decides not to invest in US treasury debt or if
the GCC countries demand another currency to pay for their oil, or if more
politicians push for the implementation of an alternative international
currency, we could see the collapse of the US dollar and experience a larger
economic crisis similar to that of Argentina in 2000-2001.
Luckily, globalization had all us invested in each other,
therefore it is unlikely that we will see any drastic decisions that could result in a global
economic disaster. Any push and pull will be done gradually and hopefully
diplomatically. Therefore, in the short term there is less risk of another crisis, but
the US leadership should not forget that global competition is growing.
Manufacturing, services, knowledge and innovation leadership gap is diminishing.
In the long term, the dollar will eventually be replaced as the international
trade and reserve currency. We should not push our luck.
If the US does not fix the national economic problems
in the short term, we will all face a bigger crisis in the mid and longer terms.
I know this sounds gloomy, but I do not agree with the prophets of doom who are
predicting the socioeconomic collapse of the United States. Make no mistake, the US will recover.
The road to recovery
is rocky with potential setbacks, and we have to pay for our mistakes like
8. What is the new economic growth
for the next decade?
Innovation in products, services, value
chains and business models is the only sustainable growth strategy. New
knowledge and business networks will shape the new global economy. Entrepreneurs
should shift their thinking from "How can I make successful products to sell to
clients?" to "How can I create products and services that can compete globally?".
Your local products and services now have to compete with products from China, India, US
and Europe. They all compete on price and quality. Politicians should shift
their thinking from "How can I balance the budget?" to "How can I attract top global
talents, businesses and investments to compete in a global economy?".
CEO Q Interview
Global Economic Outlook 2011
US Economic Outlook 2011
Global Investment Outlook 2011
GCC Economic Outlook 2011
Lessons from the Global Economic
About Med Jones
Med Jones is the president of
International Institute of Management. He is recognized
as one of the few experts who predicted the US financial
and economic crises of 2008. In January 2007, he challenged the US President's State of the Union Address, Federal Reserve Chairman and world economists. His predictions were the most comprehensive and accurate
among the experts who warned about the crisis.
The original warnings and predictions can be found at:
Jones is a non-partisan technocrat. His predictions are followed by Democrats, Republicans, and Independents. He can be