So China's industrial output is the worst for at least 15 years, maybe longer: in the first quarter of this year it was up 5.1 per cent on the year earlier, with overall growth up 6.1 per cent, according to figures released yesterday by the country's National Bureau of Statistics.
Well, what is wrong with that? Most other countries would be utterly delighted to see a number like that. Europe's industrial output was down 18.4 per cent in February, and while we don't yet have figures for first-quarter growth, it is bound to be horribly down. The UK and US are doing only marginally less badly.
The extent to which the downturn is speeding up the shift of economic power to the emerging economies becomes starker every month that passes. Both China and India, the two largest emerging economies, have been hit by the global downturn, but both look like growing by around 6 per cent this year, whereas the average growth in the developed world looks like being minus 3 per cent.
So the relative shift is huge, the largest such gap that has ever occurred. The BRICs (Goldman Sachs' clever acronym for the four largest emerging economies, Brazil, Russia, India and China) may not be doing as much as some of us had expected to pull the world out of recession. The growth of China and India seems to be internalised and is not helping world trade to recover, while the Brazilian economy and to an even greater extent Russia's have been sucked down along with the rest of us. But in terms of the relative size of the economies the shift is greater than most of us expected.
To get a handle on this, I have been looking at the recent work on this subject by the Goldman Sachs team. The big message is that there are signs that these economies are now stabilising and that after a difficult few months there are "tentative signs that they are pulling the world economy in a different direction, namely, upwards".
There is a bit of a dip in Chinese growth this year, a dip that has the effect that for the first time since the 1970s, Chinese growth will be below that of India, albeit briefly. Brazil and particularly Russia are taking a real hit. But if you look at the real contribution to world consumption, the change from the middle 2000s is remarkable.
Until last year the US consumer totally dominated the field; now it is the Chinese consumer that contributes most to global demand, with consumption in the US negative this year but consumption in all four BRICs positive this year and next.
The resulting shift in relative size means that China passes Japan next year (maybe even this year) to become the world's second largest economy (see top right-hand chart), while Brazil passes Canada. The date for China passing the US to become the world's largest economy has come forward to the late 2020s (bottom right), by which time India has passed Japan too. The point here is that the shift towards the BRICs and away from the G7 is taking place even faster than the Goldman team initially expected when it first created the BRIC model six years ago. That picture for the 2030 pecking order is very similar to the original picture for 2050.
This leads to two intriguing questions. One is whether the power of the BRICs will change the profile of the recovery. The point here is that the governments of the developed world have taken on so much debt to try to crank up growth that they, and their taxpayers, will be hobbled during the recovery.
As soon as growth gets going we will all have to pay much more tax, and if the monetary easing leads to higher inflation, we will have to pay higher interest rates, too. Actually, even if inflation does not pick up, interest rates will have to rise because the present levels are artificially low and will damage saving if they continue for too long.
I think the answer to that is a cautious "yes". The contrast between the excess of savings in Asia and the debt burden of Europe and North America is so massive that to keep growth going we will have to rely more on Asia.
You can puff up things for a while by running these huge government deficits, but we all know these are not sustainable. So for the recovery to be sustained, it will have to be led by Asia.
The second question is the extent to which the success of the "saving nations" in getting through this downturn, and the contrast with the failure of the "borrowing nations", will change the behaviour of the latter.
Again, I think the answer is a cautious "yes". We are not stupid. We have seen the way in which excessive personal borrowing has got us into trouble, and the correction has been rapid. In the UK, household savings dipped below 2 per cent, but are already back up to around 6 per cent, and are rising fast.
We are also having to put down much larger deposits on homes, something that would be completely normal to the Chinese, for in China homes are bought with loans of less than half the value of the property, and many without a mortgage at all.
Western companies are learning that they are much safer operating with low debt levels if they possibly can, for this has been the moment when companies with cash can buy up assets at once-in-a-generation prices.
What we have yet to see is the backlash against excessive government borrowing, but that is understandable given that the full horror of this has yet to be revealed in most developed countries. Still, expect that to become more evident in the months ahead.
For the basic lesson of this cycle is becoming increasingly clear. The countries that are coming through in best shape are those with low debt levels, personal, corporate and governmental.
Imagine the world in another 20 years' time, when two of the top three spots are held by what we still call emerging nations – an expression which by then will have become antique because they will have emerged full and proper.
It is not just a world where Chinese and Indian attitudes to thrift will dominate, but one where we in the West will surely start to feel a little ashamed of our own diminished authority.
I suspect that in time we will come to look on the 2009/2010 recession as an historic turning point, the recession that gave a new impetus to the shift in both economic power and financial attitudes away from the old developed world to the new one.Reuse content