By Matt Goodman
Editor’s Note: The CSIS Asia Team is writing a series of analyses that forecasts key issues and challenges in the Asia-Pacific. In this post, Matt Goodman discusses how the world’s major economies face political hurdles to growth in 2013. Want more analysis? Plan to attend the CSIS Asia-Pacific Forecast 2013 event on January 29 in Washington D.C. or watch the webcast live online.
The “politics of growth” is likely to be the main theme in the international economy this year. Many of the world’s major economies – including the four biggest: the United States, China, Japan, and Germany – are in the midst of political transitions, and each faces serious economic challenges.
The opportunity is for leaders in these countries to use their fresh mandates to move ahead with structural reforms required to strengthen growth over the medium term. The challenge is that messy domestic politics may impede the necessary reforms – or even imperil growth in the near term.
In the United States, the main challenge is of course finding middle ground between Democrats and Republicans on the country’s still-formidable fiscal problems. For China’s new leadership, it is pulling the state back from the marketplace and shifting the growth model to one driven by consumption rather than exports, in the face of entrenched interests and rampant corruption.
Japan’s new government has declared war on deflation using monetary and fiscal stimulus, but it must also plough ahead with painful labor-market and regulatory reforms to create more lasting dynamism in the economy – all of which would be facilitated by an early decision by Tokyo to join the Trans-Pacific Partnership (TPP).
For Germany, which faces elections in the fall, the challenge is on two fronts: reviving the country’s own growth following a slowdown that began last year, while effectively underwriting efforts to contain financial risks and restore growth in the periphery of the eurozone. New governments in a number of other large countries, from Italy to South Korea, face a plethora of economic challenges of their own.
In all these countries, the economic prescriptions are easier to devise than overcoming the political obstacles. If new leaders rise to the challenge, markets may reward them and push global growth in 2013 above the current consensus forecast of around 3 percent – a disappointing pace several years after the Great Recession. But many risks remain, and another round of crisis cannot be ruled out if governments, especially in the Big 4, don’t get the policy and politics right.
Mr. Matthew P. Goodman holds the William E. Simon Chair in Political Economy at CSIS. His newsletter Global Economics Monthly focuses heavily on developments in the Asia-Pacific. To learn more you can RSVP for the CSIS Asia Pacific Forecast 2013 event on January 29 or plan to watch the live webcast online at CSIS.org and keep an eye out for #Asiapalooza on twitter.
Matthew P. Goodman holds the William E. Simon Chair in Political Economy at CSIS, with particular emphasis on Northeast Asia.