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Analysis
Brighter spots on world economy

Brighter spots on world economy

Message for the future: Peruse the P Group

by David Marsh in Lima

Mon 12 Oct 2015

The bright spots are getting brighter. There was a somewhat gloomy build-up to the annual meetings of the World Bank and International Monetary Fund in Lima at the weekend. The Federal Reserve didn’t help by indulging in protracted agonising over whether to raise interest rates, deciding against a hike on 17 September.

In earlier years, the Fed often stood accused of failing to take the rest of the world into consideration in its monetary decisions. In the manner of a newly baptised chief executive who has overdosed on psychological counselling, Fed officials now seem laboriously to leave no stone unturned in searching for reasons not to raise rates. Yet, as Stan Fischer, the lugubrious Fed vice-chairman, said on Sunday in Lima, emerging market and other countries have told the US central bank to go ahead and ‘just do it’.

The Fed has made much of Chinese uncertainties. Yet Beijing officials have been at pains to stress – in a justified spirit of cautious optimism – that the worst of China’s stock market and currency adjustments is now over, and that long-planned Chinese growth slowdown is far from dramatic.

One of the most encouraging features of the Lima gathering was the assertion from China that it will continue improving transparency on internationally relevant (and sensitive) Chinese economic data (for example, on the composition of foreign reserves). This will have repercussions on other large emerging market economies such as India and Saudi Arabia, which could improve reporting on parts of their economic and financial arrangements.

As has been the case in Europe over the past 20 years – and in the emerging world, too – the smaller countries have shown the way in spurring economic reforms and laying down the groundwork for steady growth. In assembling a future road map, we might do worse than focusing on the P Group of emerging market economies such as Peru, Paraguay, Poland and the Philippines – the subject of an OMFIF seminar in Lima on Saturday. (If one wished to be more expansive, the grouping could be extended to Pakistan and Panama as well, both of which display some encouraging economic patterns).

As Adrian Armas, chief economist of the Central Bank of Peru, says, one unifying factor is ‘P equals Pacific’. Even though Peru is the only member of the P Group to be a signatory of the Trans-Pacific Partnership trade accord agreed earlier this month, a Pacific-led fillip to international trade and investment will have benevolent effects on many countries beyond the seaboard.

The six countries named above have disparate GDP sizes, from $30–40bn in the case of Paraguay and Panama to $200–500bn for Peru, Pakistan, Philippines and Poland, but they show important common factors. They are all registering annual growth rates comfortably above 3%; they benefit from growing populations, especially of the middle class; they have weathered softer commodity prices relatively well; they have introduced beneficial programmes to improve the workings of product and labour markets; and they are implementing generally sensible monetary and fiscal policies.

Above all, they have overcome the ‘tyranny of geography’, using the advantages of globalisation to escape regional drawbacks. Poland no longer has to be overburdened by its proximity to Ukraine and Russia. Paraguay can sidestep being sandwiched between the faltering economies of Brazil and Argentina. The Philippines does not need to fear ripples from a Chinese slowdown unduly. Watchers of the global economy should upgrade their lexicon of useful acronyms – for names to follow, the message is this: Peruse the P Group.

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