• Home
• News Article

Feb 21 2012

more articles from

GCC poised to accelerate: economist

Europe situation still 'fluid'
KUWAIT CITY, Feb 21: The GCC countries, including Kuwait, will have a greater share in the global economic growth in a changing economic world order paced by the rise of Asia, says Japan's former Deputy Finance Minister and professor of economics, Eisuke Sakaki-bara. The professor was in Kuwait Tuesday for a lecture titled 'The world financial crisis and the role of Japan and Japanese Yen,' delivered at Kuwait Chamber of Commerce and Industry, organized by Al Sayer Group. Sakakibara gave the GCC countries a positive take for their natural resources, as he predicted energy and food to be in big global demand in the future. The price of energy will continue to rise with growing China and India, and the Gulf countries will harvest the benefits.

Crisis
The professor began with an analysis of the most recent events in Europe, where a bailout agreement to waive 70 percent of private debt has been reached. "So the immediate crisis is over." But he added that the situation is still fluid. "Euro countries, including France, have been downgraded."

Sakakibara went into a little history to give some perspective to the crisis, and explained how following World War II Europe began to decline and the US emerged as the world's biggest economy. "Meanwhile, France and Germany began the integration of Europe in the 50s through the steel and coal communities, eventually laying the foundation for EU."

The financial crisis, the economist noted, began in the US with the Lehman Shock, which affected Europe. The reaction was excessive fiscal measures, leading to a fiscal crisis. Greece, he added, is really only a fiscal problem.

"Five countries including Spain and Italy had to loan over national debt. The total amount of loan over touched 260 billion Euros." The professor warned that if the loan overs don't succeed, "the future is going to be fragile."

After painting a dim picture of Europe, the professor gave the US a brighter outlook, "with unemployment falling to 8.2 percent." He gave credit to the Obama government for wisely using fiscal and monetary policies to build the economy. "Quantitative easing will be extended till 2014."

However, Sakakibara feared a backlash of European downturn to affect the US, and doubted the sustainability of its recovery. He read this as a sign of the gradual decline of the US and Europe, making way for Asia.

On the subject of currencies, Sakakibara was gloomy about Euro's future, saying "we may not see Euro in the next 30 years." The Eurozone, he added, is just buying time to disintegrate, and he saw more chances of that happening, rather than union holding together at the cost of burdening Germany's tax payers.

The US, he noted, is suffering balance sheet problems, with three out of five of its major investment banks going broke. The two that have survived, City Bank and AIG, are afloat on tax money, and have changed their models by deleveraging. So investment banks are disappearing. The balance sheet problems will take time to resolve, and so the dollar will not strengthen in the mid or long term.

"The US dollar will stay strong against Euro, but will be weak against Chinese Yuan." The Chinese Yuan, he added, could also replace the US dollar as the key currency in the world in 40 years."

The Japanese Yen is going strong, not because of its internal strength but because of the weakness of the Euro and Dollar.

Growth
The economist then focused on the phenomenal growth of China and India, which he said is not new. "If you look at the last 4000 years of world history, China and India were number one and number two in the same order. In 1820, China accounted for 29 percent of the world's production, and India 16 percent. Today, the two countries share 45 percent of the world's total production"

He added that this growth is also rubbing off to the west of India in the Middle East and Africa. Further analyzing the two emerging Asian superpowers, Sakakibara favored India in the long term as he expects the Indian growth of 7 percent to be more sustainable than China's average 10 percent. This he reasoned would be due to India's massive population growth that is running to surpass China by 2015, touching 1.7 billion. Extending the math, the economist predicted India's GDP to overshoot China's by 2025."

With a quick comparison to the rise and fall of the US economy, Sakakibara saw China negotiating a similar curve, bloating into a bubble in the recent past. "China is now making corrections, and its growth rate has fallen to 8 percent.

The professor felt the world is undergoing a structural shift economically with the growth phase of developed economies like the US, Europe and Japan almost over. "They have come to maturity."

Dwelling on Japan, Sakakibara said that the country has to globalize operations and focus on Asia to keep up growth. "Japan has to focus on selling to countries like China and India." He named three advantages for Japan, giving it hope. Japan's environment, which is 65 percent forestland, its security, very limited engagements in war throughout history, and health, highest lifespan index in the world of 83 years.

The professor cited as the biggest drawback for Japanese economy the dwindling population. Japan, he stressed, has to invent ways to encourage childbirth, and suggested European social welfare models as a viable solution.