Global economic trends are disturbing

World trade is not picking up, and only a handful of countries are recovering strongly - but Israel is among them.

The most recent world economic data show a disturbing ongoing tendency towards stagnation or even mild recession and deflation. Trade is not picking up to any substantial extent except in northern Europe and China. One result of this is a growing tendency on the part of several countries to take measures to weaken their currencies, especially since they blame US quantitative easing (monetization of debt) and the resulting decline in the value of the dollar vis-à-vis other currencies for their export woes. Thus there is no impetus to growth on the trade side of the ledger and a worrying trend towards competitive currency manipulation. In the US, still by far the world's largest economy, growth is minimal, unemployment is not improving and the average standard of living (mean income) is down 7% from the pre-2008 level.

There is no help on the investment side, either. Capital goods orders in the US are down 4% from the beginning of the year and capital expenditures in general are at zero growth. The same is true for Japan and for much of Europe with the exception of Germany. The major developing countries: Russia, South Africa, India, Brazil, Indonesia and Turkey, show similar patterns of stagnation, mild decline or anemic growth in both trade and investment. China again is the major exception.

In the Middle East/North Africa the situation, excluding Israel, is no better to substantially worse. Leaving aside countries in extensive political and social turmoil, such as Libya, Lebanon and Syria, where economic decline is precipitous, Egypt is heading towards financial disaster, sustained only by huge transfers from Saudi Arabia and the Gulf States. Jordan is stumbling under the burden of hundreds of thousands of Syrian refugees and Iran is suffering from the effects of economic sanctions.

In the broadest sense, those countries that are demonstrating a reasonable to strong recovery from the "Great Recession" are at this point limited to a handful, including Canada, Australia, Germany, China....and Israel. Israel is not just an island of stability, productivity, democracy and relative social calm in a stagnant world and an extremely unstable region, but it escaped entirely the Great Recession and has become the second-largest center of scientific and technological progress in the world, after Silicon Valley.

Nevertheless, Israel cannot escape being affected by the international situation, not to mention the turmoil in its neighborhood. It must resolutely stay the course in economic and financial policy while juggling urgent defense and security expenditures against also urgent social programs. It must continue as well to open and develop new markets and sources of investment capital. In this respect, the recent decision of Li ka-Sheng, the Hong Kong multi-billionaire, to donate US$130,000,000 to the Technion as well as dedicating another $150,000,000 for local costs involved in the establishment of a campus in China is of extreme significance.

Such a project would not have been initiated without the permission, support and encouragement of the government in Beijing. In other words, one of the largest countries in the world has decided it wishes to enter into partnership with one of the smallest. Ironic indeed, but a decision that makes a great deal of sense for both parties.

Norman A. Bailey, Ph.D., is Adjunct Professor of Economic Statecraft at The Institute of World Politics, Washington, DC, and a researcher at the Center for National Security Studies, University of Haifa.

Published by Globes [online], Israel business news - www.globes-online.com - on November 3, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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