Citigroup’s 10-year view

Citigroup’s 10-year view
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First Published: Tue, Nov 24 2009. 10 38 PM IST

Updated: Tue, Nov 24 2009. 10 38 PM IST
A report on the global economic outlook and strategy for 2010 by Citigroup Inc. has, apart from the more conventional immediate prognostications, provided forecasts up to 2020. What has led to this bout of crystal-ball gazing? The amazing rise of China and the supplanting of the dominant position of the US and Europe by the Brazil, Russia, India and China (Bric) economies. The chart shows the rise of these countries over the next 10 years. While China is undoubtedly the star of the show, India’s economy will in 2020 be almost a quarter of the US. Looking still further ahead, China’s economy will probably overtake both the European Union and the US between 2020 and 2030, while India will overtake Japan to reach the No. 3 spot.
But this is more or less the accepted wisdom. What’s more interesting are the implications of this trend. First, says Citigroup, there will be a huge rise in investment demand in the region. The report says: “In real terms, using 2009 prices, US consumer spending rose by about $300 billion per year in 2004-07, but shrank in 2008 and 2009. On the same basis (real terms, 2009 prices), the annual growth in investment in non-Japan Asia was about $235 billion per year in 2004-07, but is likely to average about $460 billion per year in 2010-11 and $550-600 billion per year in 2012-14.” In other words, investment demand in non-Japan Asia will take the place of US consumption as the driver of the world economy. That will mean massive demand for metals, engineering, power plants, infrastructure.
Graphics: Paras Jain / Mint
Second, Citigroup acknowledges that “if excessive financial liberalization” helps explain the 1990s, emerging markets crises and the developed-country crisis of 2008-09, then we might enter a period where capital controls and constraints on global credit cycles become a more visible facet of the global financial architecture. That would mean capital may not be as free as it has been in recent times and it would involve a lessening of the clout of the big global banks and the rise of domestic money as the driving force in the Bric markets.
We can think of several other changes. Won’t the rise of the comparatively poorer population of India and China result in higher demand for basic consumption goods? Think TataNano instead of SUVs. Household debt-to-gross domestic product ratio is very low in both China and India, which again means big opportunities for financial services in these countries. But perhaps the most radical change that the report mentions is the constitution, in the future, of a new G-6—US, Europe, China, India, Russia and Brazil.
Unfortunately, such changes in economic power rarely play out according to the script. Nor are they free of friction. As sociologist Giovanni Arrighi has pointed out, “In all transitions, wars were essential ingredients in the change of guard at the commanding heights of world capitalism.”
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First Published: Tue, Nov 24 2009. 10 38 PM IST