A Publication of WTVP

It seems that the weather and the global economy have reached a conflux of certitude in central Illinois. Just as we have recently had days that remind us that spring is coming—even if it is too soon to feel hopeful—indicators continue to promise that the world’s economies are on the mend. Certainly cold, hard days are ahead, but the time has come to look beyond our borders, as the global economy rebounds.

Angela Weck, the executive director of the Peoria Area World Affairs Council (PAWAC), a non-profit organization devoted to fostering an educational approach to world problems, has noted increased interest in global economic topics among their membership.

“The economic crisis has been felt deeply in central Illinois. However, our community understands that the economic recovery we experience here is affected by the happenings in the broader world. It is important that we understand the full impact of the world economy, especially in terms of how its recovery will be our own,” Weck explains.

Yet, rarely has the form that recovery is going to take been less certain. While it is safe to say that the v-shaped recovery favored at one time is off the books, not much else can be said with confidence. However, it is worthwhile to take a closer look at how recovery is taking hold across some regions that are key to our economy.

A Mixed Outlook for Europe
Although Europe’s recovery in 2010 will be mixed, its banks and governments are creating an environment of cautious consumer and investor confidence through fiscal and stimulus plans that should prod recovery throughout the continent in the upcoming year.

While Europe continues to dig its way out of reduced demand among its trading partners, countries like Ireland and Poland are experiencing an uptick in exports as firms outside of Europe take advantage of the weaker euro. Moreover, the larger export-driven economies of Germany and France are also experiencing growth. However, further International Monetary Fund (IMF) involvement with smaller exporters dependent on foreign capital inflows, such as Romania and Hungary, not to mention battered Iceland, is likely to continue.

Economists agree that despite the positive economic outlook for most European countries, high unemployment rates are going to continue to threaten regional recovery in the upcoming months. According to Eurostat Data, the euro area’s jobless rate continued to climb in December, reaching 10 percent. Analysts will also be keeping a close eye on Spain, Portugal and Greece to see in which direction their economies teeter.

Latin America Poised for Growth
Closer to home, the developing economies of Latin America are poised to shake off economic torpor. Chris Kraul of the Los Angeles Times reports that the region will post economic growth of 4.1 percent this year and is expecting strong growth between 4.5 and five percent from Peru, Uruguay, Bolivia, Chile and Panama.

Many economists attribute Latin America’s strong performance to its failures in past downturns. Weak institutions and businesses were culled by a succession of financial meltdowns and the economic reforms that were instituted in response have served the region well.

There is another reason for Latin America’s positive economic outlook—one that is bound to elicit a sigh of exasperation: countries that made a conscious effort to turn away from the U.S. fared better than those that maintained closer ties with our economy. A prime example of this rests with Brazil and Mexico.

It cannot be ignored that as Brazil has aggressively sought commerce with China, Brazil’s gross domestic product growth is expected to shoot to 5.5 percent in 2010. So, as commodity-rich Brazil is benefiting from China’s domestic spending spree and its seemingly insatiable need for imported materials, Mexico continues to flounder, as demand from its main trading partner, the U.S., lags behind. Tellingly, the U.N. reported that Central American exports decreased by only six percent in 2009 (if Mexico is excluded), while Mexican exports fell by 22 percent.

Asia Leading the Way
As crisis contagion from the West rapidly spread to Asia, many pundits were quick to forecast an extended regional recession, due to dependence on the West. Instead, Asia is becoming the engine of global growth. This was not due to returning demand from the West. Recovery has been fueled by an increase in domestic demand and growing regional trade bolstered by sound fiscal and stimulus policies.

Asia’s largest economies will continue to lead the way in 2010. The Economist Intelligence Unit expects China and India to reach GDP growth of 8.2 and 5.5 percent, respectively, and Morgan Stanley forecasts that Indonesia may reach six-percent growth. However, no prognostication on global recovery would be complete without a qualifier along the lines of: “Really, it all depends on China.”

Robin Bew, in The Economist’s review of 2010, described China’s effect on the world economy in terms of a dragon’s tail, either flattening economies or sweeping them along to greater prosperity. This is probably overstating China’s role in the recovery, not to mention the strong possibility that it may be the world’s next exploding bubble. However, the challenges facing China in 2010 are some of the same challenges faced by the world economy.

Just as the Chinese government turned to extraordinary stimulus measures in order to ensure that its economy did not spiral, governments and central banks around the world are now faced with the prospect of damaging their own countries’ long-term growth prospects by keeping measures in place or withdrawing that support in the hope that the private sector can step in without reigniting recession.

Export Investments Paying Off
How do these trends relate to central Illinois? “Many of our area’s companies are already exporting to the countries showing economic strength, including China and Brazil,” remarks Jim Foley, director of Bradley University’s International Trade Center. “Their past investments in these markets are now paying off.”

Although it would be difficult to find somewhere to better enjoy brighter days than central Illinois, we will have to wait to see how this global balance plays out in the local economy. Nonetheless, we can be certain that spring and recovery are drawing nearer. iBi