| Issue 6 |
The End of the World (Economy) as We Know It
| Adeline Aw, Wee Shu Lin and Lee Chor Pharn
Increased government intervention
in the nancial sector may stifethe innovation necessary or wealthcreation and the nancing o thereal economy. Over the long run,private consumption and growthlevels may be muted i access tocredit is restricted.
could reducethe overall level o global tradeand aect the main mechanismthat has supported Chimerica’sprosperity. Blatant orms o protectionism, such as tari wars, seem less likely. But moresubtle orms o protectionism,embedded as clauses inmany scal stimulus plans,may hinder the ree fow o trade too.
Fundamental changes inG3 consumption behaviour
could aect the growth path o the world economy. US consumptionspending, in particular, accounts orone-third o global growth in privateconsumption. Hence, any decline inG3 consumption, arising rom higherlevels o unemployment and the needto save more, would signicantlyaect global GDP growth.
ThE ChAnging lAnDsCAPE oFgloBAl DEmAnD: PossiBlE sCEnArios
The interplay and depth o these legacyeects will determine the likelihoodand extent o revival in the growthengines o Chimerica. While the currentcrisis has certainly increased the rangeo possibilities acing the world economyover the next ten to twenty years, we canextrapolate these legacy eects to derivethree possible scenarios or the uture o the global economy.
scea 1 : wuded Beat
In this scenario, the world emergesrelatively unscathed rom the economiccrisis o 2008–2009 as coordinatedgovernment eorts succeed in stabilisingthe global nancial system. Financialinnovation, in turn, manages to outpacethe tightening in regulation, allowinghouseholds and rms to attain easyaccess to credit. Consumer and businesscondence are restored in the majordeveloped economies, and the export-
Source: Courtesy of Economics and Strategy Division,Ministry of Trade and Industry