Sir John Major: U.S. and UK Will Lead Global Growth
TheFinancialist: Five years after the financial crisis began, the global economy is not only safely out of the intensive care unit, it may soon be ready to leave the recovery ward. That’s not to say individual economies are back to pre-2007 robustness of health, but things are steadily getting better. Even Europe and Japan are growing again. In fact, for some major economies, 2014 may be a year of surprisingly rapid improvement. For his part, Sir John Major, former Prime Minister of the United Kingdom and Senior Advisor to Credit Suisse, believes that the U.S. and the U.K. in particular will exceed growth expectations over the next 12 months. In this recent video interview with Credit Suisse’s Cushla Sherlock, he discusses China’s long-term growth trends, geopolitical risks and what’s ahead for the world’s major economies in 2014.
Credit Suisse: Europe has finally emerged from recession, Japan is growing after 2 years of stagnation and the US is trudging ahead. How would you describe the current state of health of the global economy?
Sir John Major: It’s certainly in recovery. I don’t think there’s very much doubt about that. It’s a good deal better than it was 12 months ago, and I suspect it will continue to improve over the next 12 months – perhaps faster than we may have imagined in some parts of the world. But, in many economies, there’s some way to go before we return to the status quo of 2007, before the financial crisis.
CS: Which parts of the world do you think will improve more rapidly than expected next year?
JM: I think the United States will recover a good deal more swiftly than many people imagine. They have their problems, they have a huge debt position, but the trajectory of bringing debt down is very attractive now. They’re becoming more and more self-sufficient in energy, which will add to internal confidence, and improved spirits. So I suspect that the United States will grow quite rapidly. Furthermore, I think the United Kingdom might outperform people’s current expectations. Traditionally, they have swung further and faster into recession, or further and faster into growth, than most forecasts have indicated. I think that may happen again. China, at a growth rate of 7.5 percent, will still be very significant. So, I think some countries will grow faster than anticipated. However, we’re not looking at a boom scenario. We’re looking at a growing recovery. And I think growing steadily may be healthier in the medium term, than a very rapid and sharp return, artificially stimulated.
CS: When will we see these improvements in growth actually start resolving some of the world’s biggest economic challenges, like high unemployment in Europe, sluggish spending in the US, and heavy government debts in Europe and Japan?
JM: I think that is going to take some years. With any fruits of growth, there’s partly dealing with the debt problem, which is expensive and diminishes the money available for investment, and there’s partly the expense of growth-related policies. The recent financial crisis, and the recession that followed it, have been almost unprecedented in scope. We haven’t had anything quite like this to deal with for a very, very long time. And of course, policy has been cautious. It’s going to be quite some time before we return to the healthy state of the world economy, but we are heading toward it now.
CS: Are there obstacles that risk knocking back the pace of growth?
JM: There are always uncertainties in the world. Another unexpected and large banking collapse, for example, would clearly have a very significant effect. If a problem arises and there’s a dash to lower the exchange rates of currencies among many countries, that could conceivably create a currency problem. There’s also always the familiar problem of whether there will be trouble in one part of the world or another – most obviously, in the Middle East. That could create problems. But, there’s nothing one can foresee now that looks substantial, or as though it could derail what is a steady recovery.
CS: Despite the recent slowdown, at 7.5 percent, growth in China is still explosive by the standards of developed countries. Is the economic slowdown actually a healthy development for the long term?
JM: I think it is healthy that China are looking at a more sustainable growth pattern at the present time and for the future. Also, for a raft of different reasons, China have decided to expand domestic demand within the country, with wage increases averaging about 13 percent a year, presumably for the next few years. That will create both a bigger internal market within China, and a much bigger market for the rest of the world to aim at. I think that is a very benevolent development for the world economy.
CS: If you look back on the past few decades, how would you compare the world now? Are we in a safer place?
JM: In terms of military matters, yes, I think we are in a safer place. It’s fashionable these days to be very gloomy. You can be very wise if you’re gloomy. But some very optimistic things are emerging. One of them is, as the global economy intertwines, as we become more and more dependent upon one another, as America, China, and the European Union begin to have increasingly common interests in what happens around the world, the chance of conflict is much less than it was. The relationship, for example, between the two biggest powers, America and China, is infinitely better today than was the relationship between the two dominant powers, America and the Soviet Union, 30 years ago. We may have small wars, we have terrorism, we may have economic problems. We will have uncertainties. But we don’t have that risk that existed for so long, of a serious intercontinental conflict. That, I think, is becoming less likely every single year. And I think that is a very attractive development side effect of the way the world economy has made us more dependent upon one another.
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