Countries like Jamaica whose economies are heavily dependent on trade with the United States (US) could always rely on quick rebounds in their American markets as recovery from past US recessions were usually short-lived. But our policymakers and businesses cannot assume that, as in most previous recessions, declining output is going to be followed by higher-than-normal growth as the US economy begins to recover in the period ahead. But as Olivier Blanchard of the International Monetary Fund's (IMF) Research Department has pointed out, recovery from the current recession is unlikely to be quick because "some parts of the economic system have broken".

The worst-damaged part of the system is the US consumer, who has been the fly-wheel of world demand, providing the market for a large chunk of the goods and services produced around the globe. Since that consumer, who has suffered massive loss of wealth which will take years to recoup, is saving more in fear of unemployment and no longer has easy access to credit, US demand will, very likely, not provide the momentum for strong global recovery.

Recovery of the US economy itself will be anaemic as consumption is responsible for over 70 per cent of the country's economic activity. Moreover, its financial system is under stress, flagship industrial machines, like General Motors and Chrysler, went bankrupt. And even a behemoth, such as General Electric, the world's largest conglomerate, is a shadow of its former self. While higher government spending under the stimulus package of the Obama administration is helping to halt the downturn, a surge in the US fiscal deficit and a worrisome rise in national debt mean that the recovery cannot be sustained on such spending.

If the US economy cannot play the central role in global economic recovery as it has in the past, are the economies of Japan and the European Union, the other growth poles, strong enough to take up the task? Japan, where the long reign of the Liberal Democratic Party has just ended, is in deep stagnation and is struggling with a huge national debt that has placed a limit on the extent of stimulus spending.

It is also a high-savings economy driven by exports, and not domestic consumption. Though Japan provides surplus capital for investment internationally, Japanese consumers are not going to generate the demand needed to accelerate the pace of economic recovery around the world.

Large surpluses

The Euro-zone region, which has the largest economy, is also more export oriented than the US, and Germany, the biggest unit in that economy, runs large surpluses in its trade with the rest of the world. European consumers, like their American counterparts, have been hit by large losses in wealth, especially in housing, and are now taking a wait-and-see attitude to spending, unnerved by the jump in unemployment to near 10 per cent across the region at a crisis level of 20 per cent in Spain. Jamaica and other Caribbean countries that traditionally look to North America and Europe for tourists and for markets for commodities, like bauxite and agricultural products, should be carefully analysing these factors as they put together plans and strategies to pull themselves out of the rut.

China is being viewed as the economic engine most likely to help boost world demand and sustain global recovery. Not only does it have a large surplus in its trade in goods and services with the rest of the world, and the biggest pool of foreign reserves, but its economy is the one still registering the strongest growth, the pace of which has accelerated in recent months. Both consumer demand and investment spending have been picking up speed. Having moved quickly to cut production in several industries as world markets slumped, China has pumped up domestic consumption by freeing up credit, which it is able to do because its financial system has not been ravaged by the meltdown in the US and Europe. The government has also unleashed a near US$600 billion stimulus package, which has been quick-acting, diverting production towards internal markets as demand for its exports have softened in the US and Europe.

Domestically driven growth

The question is whether China is convinced that it is in its self-interest to move with some speed towards a more domestically driven growth path, diluting the export-led growth model that has been the main basis of its economic miracle over the last 25 years. It could well be that the higher rate of investment targeted to meeting local consumer demand, housing and other social services in the last 18-24 months represents the early outlines of an evolving strategy to lessen the dependence on exports. The next vital step would be for China to adjust its exchange rate and trade policies so imports, particularly from the US, can increase. It is still early days.

Where Jamaica's economic interests are concerned, as in the bauxite industry, it is important to note that China has over the past 10 years moved to occupy a dominant position. In 2003, it consumed 5.2 million tonnes of aluminium second to the US, where aluminium use stood at 5.7 million tonnes. Last year, China's consumption of aluminium reached 12.6 million tonnes, almost two and a half times that of the US, which dropped to 5.3 million tonnes. Its consumption now is about equal to that of the US and Europe combined. Though this dramatic rise has been met mostly from domestic production of alumina and substantially from local bauxite sources, it has helped to drive global markets, and the strategy of the Chinese to increase investment in alumina plants overseas could benefit Jamaica.

Dennis Morrison is an economist. Feedback may be sent to columns@gleanerjm.com.