Writing in L’Express (February 4th, 2015, N•3318), I said that there was the threat of a new global economic crisis while revealing the warning signs, which caused sniggering. The analysis is even truer today: the world is getting closer to a major economic disaster. And yet, nobody talks about it.
In particular, no one sees that what is at stake in China may lead, spread by contagion, to a global depression if we do not act quickly, with sufficient preventive action. China’s evolution was foreseeable: its average GDP growth of 10% per year could not be sustained and a slowdown was inevitable. Moreover, China is no longer competitive, in the heart of an Asia where a number of countries in turn are awakening. The Middle Kingdom has failed to create international companies, with globally recognized brands, as the United States and Japan succeeded in doing in their time. The Tianjin disaster dramatically exacerbates such threat, paralyzing a city of 15 million inhabitants, one of the first points of import and export in the country, and noting, following other similar events, how this country suffers from censorship that is imposed by the demands of a single-party state.
The consequences of this can be disastrous for the regime. The recession has indeed caused a decline by more than a third of the value of the stock exchange, where 200 million members of the middle class have invested half of their savings, that were set aside to fund health care and education expenses for them and their families, as well as for their pensions, that are not covered by the country. Furthermore, while economic slowdown continues, it is rural exodus that will slow down, reducing the demand for housing and toward the collapse of real estate, which will destroy the other half of savings of the middle class. And nothing is more dangerous, for any regime, than the destruction of its middle class: the basic structure of every social order.
The manipulation of the rate of exchange will not be sufficient to stop the fall. On the contrary, it may contribute to the problem by putting China into a situation where the country is dependent on the goodwill of international speculators and by encouraging other countries to influence the exchange rate in order to return to competitiveness.
Overall, the recession in China – if confirmed – will trigger the recession in Brazil, which in turn will bring about that of the United States, then ours. This threat, which does not appear to be receiving much attention at present, is approaching. Leaders in the western world will have to discuss a possible stimulus package, at the latest at the G7 in Istanbul in September. It is just that our countries no longer have, unlike in 2008, budgetary leeway, and our central banks no longer have, unlike in 2010, the option to lower their interest rates.
Then, what more should be done to help restore growth? The craziest solution, the easiest would be to resort to printing more money, as is currently done in the United States, Japan, Great Britain and the eurozone. It would end up ruining savers, that is to say, for older people, today great victors of a world without children, without providing work and growth prospects for younger people.
We still have all the means to prevent such a scenario, and even not to settle for stagnation without job creation, though this seems to be the best hypothesis today. The global economy has the opportunities for very strong growth, of a new kind, provided that mechanisms of coordination, reorientation, and monitoring that are global in scope are put in place; thinking about the economy through the lens of the interests of the next generations; fighting against economic, financial, social and political rents; and fostering innovations of all kinds. This requires boldness, confidence, transparency. All the things that politicians, regardless of the regimes under which they are, hate above all else.
j@attali.com