The IMF World Economic Outlook notes that the desired process of rebalancing global demand from countries with large trade deficits (notably the US) to countries with large trade surpluses (notably China) is not going very well.
Relatedly, it points out just how difficult it is for increased demand in developing economies to offset stagnant or falling demand in the much slower growing advanced economies.
At pages 29-30, the report notes that the advanced economies – North America, most of Europe, Japan – now count for about 50% of global demand, measured in GDP at purchasing power parity. However, if one looks at consumption measured at current exchange rates in terms of US dollars – which they argue is the relevant metric for looking at needed trade re-balancing – the advanced economies still account for about 70% ofÂ global demand.
Following this line of thought, it is estimated that consumption in China would have had to have increased by 17% in 2009 to offset the impact on world demand of the fall in US consumption compared to pre recession levels.
In short, part of the reason that the global economy is slowing so alarmingly is that the positive impact of emerging country growth on global demand is notÂ sufficient to offset the impact of consumption stagnation in the advanced economies.
Put even more succinctly, if growth cannot be revived in the US, Europe and Japan, the world is in deep doo doo.