Hamish McRae: Global growth is no longer the gift of the West. It won't stop till after the Olympics

Will the Beijing Olympics be the new Millennium? A little explanation is clearly needed but I think it just might.

The Millennium signalled the end of the 1990s economic cycle. While growth did continue through 2000, it was at a slackening pace and the world's main stock markets peaked in or around January 2000. The boom, driven by excessive investment in information technology (including a chunk to cope with the threatened "Millennium Bug"), carried on until it had an excuse to stop. In other words, it was the build-up to the Millennium and the sense of anti-climax afterwards that fixed the timing of the peak of the cycle. Had it not existed there would still have been a cycle, but it might have peaked a year or more earlier.

That last cycle, like the ones before it, was driven by events and attitudes in the developed world. This one is different. We are still very much in the growth phase, for although the UK did not grow strongly last year (and the eurozone did worse), the world economy as a whole had the strongest growth for a decade. Roughly half that expansion came not from the established developed economies but rather from the emerging economies, most particularly China but also India, Russia and Brazil - the economies dubbed Brics by Goldman Sachs.

We can already see during this growth phase that the world economy has different characteristics than it would have done were growth coming largely from the developed world. Most obviously there is no inflationary pressure in traded goods and very little pressure from wages in the developed world. Goods prices are falling in the shops here and in the US, and are flat in the eurozone. And wage growth is very low. The reasons, simplifying a bit, are that cheap imports from China hold down goods prices, while fear of jobs being "offshored" (new word, that) holds down pay demands.

On the other hand, there is more pressure than one might expect at this stage of the cycle on commodity prices and the oil price, driven mainly by demand from China. There are also larger current account imbalances than you would expect this early in the cycle. The deficit of the US, at 7 per cent of GDP, is the most notable, but the UK is in deficit at about 2.5 per cent of GDP and France, Italy and Spain have all seen sharp deterioration in their current account position. By contrast the trade surpluses of China, Russia and Brazil - though not of India - have soared, as have those, obviously, of the oil exporters.

The surplus of China, plus that of Japan, is being recycled to the US and more recently Europe, so that the old developed world can go on buying the products of the new one.

So in one sense the expansion is better balanced than in previous cycles, in that it is driven by the new economies as well as the old ones. But in another sense it is less balanced as the current account divergence is greater than it ought to be.

There has been an enormous amount of attention given to the structural implications of the shift of economic power to the Brics, but much less notice has been paid to the cyclical implications. Yet since this expansion has different characteristics from previous expansions, it is surely also reasonable to expect it to end in a different way.

In the 1980s a consumer boom was allowed to get out of hand. In the 1990s an investment boom was allowed to get out of hand. What gets out of hand this time?

In both previous booms the excesses were the result of a failure of policy by the old developed world. The US and the UK did not rein back their economies sufficiently. The European economy of the early 1990s was distorted by German spending after reunification.

The developed world is unlikely to make the mistake again of letting booms get out of control. Or at least it will do its utmost not to -witness the present tightening by central banks.

But if the developed world only accounts for half of global growth then it is not in complete control. What happens to this expansion will be determined as much by the policy of the new economies as by the old.

This is an undiscovered land. We have never had an economic cycle like this one, so we have no road map. You can look at the trend of industrial production in the old economies in recent years and have some feeling for the trend in the shorter term. Goldman Sachs has constructed a global leading indicator that seeks to show what might happen, and this suggests the present growth phase is not only intact but heading up quite strongly. Common sense would side with that view.

The longer term is much harder to foresee but at some stage in the next few years the growth phase of the developed world will peter out. During the past few days the financial markets have had the collywobbles, with equity markets reversing many of the gains they made in the first part of the year and with foreign exchanges marking down the dollar. There is always a collection of reasons for these sudden movements though one has been fears that the US will push interest rates up by more than expected. It is hard, however, to see these jitters as signalling more than a pause. In any case, the new economies are not going to want to be held back by a little local difficulty, such as tighter money, in the old ones. They will want to race on.

Can they? Will the new economies be able to extend the cycle? Or will there be some policy error in these countries, most obviously in China, that brings the cycle to an end?

We cannot know the answers, but what we can see is that in so far as it is within China's ability to do so, it will not allow any economic collapse before the Beijing Olympics in 2008. Preparation for the games, coupled with the associated euphoria, will drive things on until then. It will be a bit like the German euphoria after reunification, and it is quite hard to remember how arrogant Germany had become then, given its subsequent lack of economic growth.

By 2008 China will be a larger economy than Germany; it passed the UK last year. That does not mean it can pull the world economy along with it but the country will make an increasing contribution to global demand. Moreover, the symbiotic economic relationship it has with the US will stay intact - it has to if China is to keep growing at 10 per cent a year. If that means carrying on lending the US money to buy its exports, so be it.

In an ideal world, there should be a rebalancing of the economies both within the old developed world and between it and the new economies. The US has to grow rather more slowly, people have to rebuild savings and that current account deficit has to start coming down. Eventually all that will happen. Eventually the global growth phase will end - but not before the Olympics.

After BSkyB, let's have more carbon copies

One advantage of the confusion about carbon-trading permits in Europe is that it has focused attention on the whole carbon issue. Whether or not this system does curb emissions remains to be seen, but parallel to this has been an effort by companies to reduce emissions because they feel it is the right thing to do.

One example cropped up last week: BSkyB announced that it was carbon neutral. It measured the amount of carbon it produced and then tackled this in two ways. First it cut actual emissions through measures such as putting sensors on its lighting and lending staff money to buy hybrid cars. It is also cutting the power used by its set-top boxes. Second, it bought carbon credits in renewable energy projects to offset the emissions it cannot eliminate.

Now you could argue that it is easier for a company selling electronic signals to become carbon neutral than it is for a company making, for example, cars or indeed newspapers. But I was intrigued to learn a few months ago that one of our biggest banks was also seeking ways of making its operations carbon neutral, and it is not difficult to see this trend spreading.

Besides, at present energy prices, there are sound commercial reasons to try to use less of the stuff.

Other industries that, by their very nature, raise environmental concerns are already taking action to cut their carbon footprint. For example, the skiing industry is eager to minimise its impact on the environment. So members of the Ski Club of Great Britain have planted 1,500 trees via the Woodland Trust, while individual tour operators have carbon-offset programmes to which skiers can contribute when they book a holiday.

You could argue that self-interest is driving this trend. No company wants to be thought of as "dirty" and many doubtless see a commercial advantage in their carbon-neutral policies. But if there is commercial advantage, that is all the better because more and more companies will seize it. Being carbon neutral seems an idea whose time has come.