YOU'VE heard of the BRIC countries (Brazil, Russia, India, and China).
But have you heard of CIVETS?
Jeff Rosensweig didn't think so.
“I just made that up,” Rosensweig said at the beginning of his presentation, “US and Global Economic Outlook.”
Rosensweig, the director of Emory's Goizueta Business School Global Perspectives Program and a finance professor who specializes in global strategy, global economics, and international finance, said it is an acronym for Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa. They constitute the next wave of emerging markets. Kind of like BRIC II.
“What's beyond the BRICs?” he said. “Colombia has a very strong capitalist nation and is a good ally for us. Indonesia has a tremendous amount of natural resources. Corruption is going down and economic growth is strong. Vietnam has a very open capitalist system now and is attracting a lot of foreign investors. There's tremendous human talent in Egypt, and natural resources. Turkey has 100 million people and is the most stable of the Islamic republics, and will be in the European Union some day. Turkey has the 17th-biggest economy, yet no one ever talks about it. South Africa has a lot of resources.”
He said that China, India, and Nigeria project to have the fastest-growing economies this year and in 2013 — all over 6%.
“With Europe having so many troubles, China and India have been slowing down and will continue in 2012,” he said. “But we are looking for acceleration back to faster growth rates in 2013. There will be growth in almost all big economies in 2012 and acceleration in 2013. Recovery from the Great Recession of 2008 and the first half of 2009 has been very rapid in these big, emerging markets. It's been slower in the US. That's why so many commodity prices across the board — not just energy, but copper and metals — have come up so much. It's because of accelerated growth in 80% of the world that is not advanced countries like Europe and Japan.”
Rosensweig said people focus on China because it has the world's largest population and also the fastest-growing economy and India because it has the world's second-largest population and second-fastest growing economy, but they don't focus on: Indonesia, even though it has the fourth-largest population and a burgeoning economy; or Nigeria, which will pass Brazil to have the fifth-largest population and has had a growth rate of over 6% for years.
“I do want you to think beyond China and India,” he said.
Rosensweig said the US will probably grow between 2% and 2.5% this year and accelerate a bit next year.
“The economy has to grow 2.5% a year on average to keep the unemployment rate flat,” he said. “As a manufacturer, you produce more with the same amount of workers. So the economy has to produce more just to keep the same amount of workers.
“The US has been recovering since the summer of 2009. We've had 2½ years of economic growth — just not fast enough growth to get anyone excited.”
He said there will probably be a recession in Europe, but it will not be a deep one — countries will decline 0.5% to 1% this year and then recover in 2013.
“The world economy is growing and our economy is growing,” he said. “Why are we growing? Because exports have been booming and manufacturing is a leading edge of that, with good consequences of that being employment.
“There are potential risks. In the last two months, we seem to have lost our exporting edge. Is this the beginning of a downturn? Is the crisis in Europe meaning that exports to Europe will fall? If Europe goes down, that takes away a big part of the engine. It's a potential flashpoint. It does have me worried. Plus the price of oil has gone back over $100 a barrel, and that has drained a lot of money from our economy.”
He said another risk is that all other currencies are expensive.
“During the Great Recession, everyone thought the world financial system might collapse,” he said. “During a time like that, you don't want to hold the Mexican peso or even the euro. Everyone said, ‘What is the safe haven in what would be the biggest economic storm since the Great Depression?’ They said, ‘The US still has the strongest military.’ When push came to shove, they said, ‘I'm happiest to put my money in short-term US treasury bills,’ but you have to buy US dollars to do that. They were selling their currencies, so their currencies lost their value. That meant the dollar got stronger. It was a little hard for us to export.
“But then starting in March of 2009, all of a sudden people thought, ‘It's holding together.’ We thought it would all go under in September 2008 when Lehman Brothers went broke. But then the people said, ‘I can get a higher return in the Brazilian real and the peso and the euro,’ so they started going back into these foreign currencies, and it made us competitive because their currencies once again were valuable. That's why we had an economic recovery based on exports, including manufacturing.
“In the last few months, the world has gotten more worried about Europe. We realized it's not just Greece. They said, ‘I don't want to hold the euro. I don't want to hold emerging-market currencies, even though they have great potential. I'd rather, in a crisis, be in the US dollar,’ so down comes the peso, down comes the Indian rupee, down comes the Brazilian real.
“Now here's a bit of a risk. We've been exporting like crazy to these countries, and all of sudden their currencies don't have much purchasing power, and the dollar looks expensive. Japan's banking system is not as leveraged as ours and does not look risky. The yen … people see it as more of a safe haven than the dollar. China's currency has gained 30% against the US dollar. The government has it on a very controlled increase. This is why you see a lot of factories leaving China for Vietnam and Asia.”
He said there are three scenarios for the US economy moving forward:
“Europe might blow up, in which case we will have a double-dip recession. I'd put about a 25% chance on that. The Federal Reserve has done a good job of expanding credit, but we could have a turndown.”
“The economy could pick up steam. Let's say credit flows to small business. We won't grow 6%, but it would be wonderful if we could grow 3% or 4%, and it's not impossible.
- Something in the middle
“It's not that we've gone down and haven't grown in a few years, but even if things accelerate, we're years away from getting back to anything like our economic potential.”
“The real problem with our labor market is that some people are not actively looking for work — they're hiding in law school for three years — or they're taking early retirement,” he said. “Eighty-three percent of US men had a job at the end of World War II. Now it's more like 64%.”