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Professor Kattel analyzes the perspectives of global economy in 2012
Professor Rainer Kattel, Head of the Technology Governance Program, writes in Estonia’s leading business daily Äripäev that there is no reason to expect significant economic growth in 2012.
Companies, households and states, i.e. all market participants feel according to Kattel insecure about the future. Thus, none of them is willing to take risks, which leads to further cost-cutting and means that there is no reason to expect any growth.
Europe and the U.S. will most likely act according to this scenario and continue reducing public investments. However, cutting public sector costs will neither improve long-term competitiveness nor solve short-term fiscal difficulties. This will affect rising markets (China, Brazil, India etc.) due to their economies’ dependency on exports to the U.S. and to Europe.
Kattel concludes that similar trends in Europe, U.S and in the rising markets mark the end of an ideological era, according to which the main aim is to locate buyers with enough savings in order to sell one’s goods and services. But it needs to be remembered that on a global scale this export-based strategy is a zero-sum game and that it needs to be complemented with increased domestic consumption. The latter requires globally coordinated action, which will probably not happen. Meanwhile, Europe and the U.S. will experience a decade of low growth, whereas rising markets will orientate towards domestic consumption.
The article ends with a similar forecast for Estonia (translation by Toomas Hõbemägi of Äripäev):
““Estonia is directly dependent on the developments in global economy by its export industry. Although export growth and job creation have been impressive in the last year, Europe's looming economic recession in 2012 is likely to affect Estonian exports,” writes Kattel.
In 2011 exports reached pre-crisis level, but domestic consumption has not recovered as rapidly and this year the private consumption had negative impact on economic growth.“
As for private consumption which forms about 50% of GDP, we are back in 2004. If you add the shrinking real wages, most Estonians have not benefited from economic recovery.”
Since also the state budget has not been contributing positively to the economic growth, Estonia exited the vicious circle of cost-cutting in 2010 and 2011 only with the help of the Scandinavian export machine and EU structural funds. Kattel says that the best that Estonia can do is to hope that the Scandinavian economies continue to grow and the export demand does not fall notably.”
