The Economist: Global Growth
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The International Monetary Fund (IMF) recently released its global economic outlook. The chosen title reflects that organization’s read on current conditions: “Slowing Growth, Rising Risks.” Without a doubt, there is some validity to this view. The IMF’s outlook notes that activity has weakened, with US private-sector demand slow to increase and euro area problems with sovereign debt and banking persisting. The OECD (Organisation for Economic Co-operation and Development) also recently released its interim assessment of global economic conditions with the headline proclaiming “Economic growth perspectives weakening as recovery slows.”
However, when big global economic players such as Europe, the United States, and Japan are experiencing sluggish performance, it masks strength in many other areas. Currently, notable expansion is ongoing in a number of regions. In fact, according to IMF projections, world economic output will be up some 4.0% from 2010 to 2011. Advanced economies as a group are anticipated to experience an output increase from 2010 to 2011 of only 1.6% (with only slightly better performance of 1.9% from 2011 to 2012). However, emerging and developing economies are projected to expand by 6.4% this year and 6.1% next.
The linkages between global economic performance and the outlook for Texas are strong. Export-related production in the state is a large source of employment, with an estimated 538,500 Texans working in jobs tied to exports. For some industries, products shipped overseas are a vital source of business activity. For example, almost 28% of jobs in fabricated metal products manufacturing are export related; foreign markets are also particularly important to employment in transportation equipment manufacturing, computer and electronic product manufacturing, machinery manufacturing, and chemical manufacturing. Many other sectors also derive a substantial proportion of their demand from international markets and are, therefore, strongly influenced by what’s going on elsewhere around the world.
The total value of Texas exports to the world was almost $207 billion in 2010. As expected, Mexico is the biggest trading partner for Texas with exports to Mexico totaling $72.6 billion in 2010 (up 44% over 2005 and 17% through the 2008-2010 downturn and recovery). The IMF’s analysis indicates Mexico is likely to see output expansion of 3.8% this year and 3.6% in 2012.
Canada is Texas’ second biggest trading partner, with 2010 Texas exports to that nation just under $18.8 billion. The growth rate of exports to Canada from 2005-2010 was 27%, but from 2008 to 2010 the volume actually fell by 3%. Canada is expected to be among the best-performing of the advanced economies, with expansion in the range of 2%.
China is the third largest trading partner for Texas, with exports of almost $10.3 billion in 2010. Texas exports to China have increased dramatically over the past few years, with a growth rate of 108% from 2005-2010. The rate of growth more recently has slowed (to 22% from 2008-2010), but has nonetheless ranked among the largest in terms of dollar volume growth. The IMF outlook for China is very positive, with growth of 9.5% over 2010-2011 and 9.0% from 2011 to 2012.
Other significant trading partners for Texas include many countries in South America such as Brazil, Colombia, and Chile. Exports to Brazil were almost $7.2 billion in 2010 and have grown by 212% since 2005 (good news as Brazil is projected to see relatively healthy growth). Texas exports to Colombia in 2010 were $4.4 billion and also have grown significantly since 2005, up by 215%. Exports to Chile grew by 157% from 2005 to 2010, totaling $2.8 billion in 2010.
Also of note, for countries where Texas exports total over $1 billion per year, two have decreased since 2005. Exports to Malaysia fell by 5% to under $1.7 billion in 2010 and exports to the Philippines fell by 15% from 2005 to 2010 to just under $1.3 billion. These nations are expected to see output expansion topping 5% over the next year.
There is no denying the fact that economic performance of the major industrialized nations of the world is sluggish and significant challenges in the areas of debt and fiscal policy must be met to turn things around. Until that occurs, expansion in developing nations will be the major source of global growth.
Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.