Asia's Economies Come Up Short
The World Bank just cut its forecast for Asian growth pretty sharply, to 7.1 percent this year and 7.2 percent next year. "But Megan," you are thinking, "I would kill for a 7.1 percent increase in my income," and wouldn't we all.
Asia has different expectations. Asian economies are like brilliant young college students who are just settling down to their first entry-level positions. Sure, they're making $25,000 now, but they don't expect it to stay that way for long. I, and presumably you, live in countries that are more like 55-year-old professionals. We're doing pretty well for ourselves, but we're not on the cusp of radical change. We've already put in our time, developed our skills and our professional networks. Our incomes may still grow, but we probably don't expect them to double in the next 10 years.
As recently as April, the World Bank was forecasting growth rates of 7.6 percent this year, and 7.8 percent next year. Dropping that by half a percentage point is significant, especially since growth is cumulative. By the end of 2015, their national income will be more than 1 percent lower than previously projected, with further reductions in out years. And I don't know about you, but I could certainly find a use for a 1 percent raise.
The immediate issue is lower living standards. Over the medium term, however, it becomes whether China can deliver enough growth to maintain social order. China has basically cut a deal with its citizens: You give up political freedom, and we make you rich. That makes structural adjustment of its economy a delicate operation -- enough to keep the economy from melting down, but not enough to upset too many livelihoods. Unfortunately, the structural stresses in China's economy have become so great that China's leaders had to attempt some reforms, whether or not the patient was really strong enough to withstand the surgery. While I never want to bet against the resilience of the Chinese economy, whether they've actually pulled it off remains to be seen.
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Megan McArdle at email@example.com