The inter-dependencies & uncertainties of growth...

Macroeconomics deals with the structure and behavior of a nation's and increasingly, the world's economy as a whole. It is a fascinating field that every working professional should have some knowledge about since it affects our lives in more ways that we can truly comprehend.

A series of models are used to answer questions such as what determines a nation's savings? What determines how much a given economy can sustainably grow at and how much it actually grows at? How is this equilibrium maintained? What determines a nation's foreign reserves and its competitiveness in international markets? And increasingly, the growing international integration of all markets, commonly called globalization is complicating the national economic equilibria, inducing an increased level of uncertainty. Indeed, there is no such thing as a pure national economy any more.

Case in point: Oil is the most valuable natural resouce in the world today for the health of the global economy. Over 40% of all energy needs are fulfilled by oil. Oil prices had been relatively stable at USD 15 - 20 for several decades until a few years ago. Since then, oil prices have tripled.

Given that the US, for example, imports large quantities of oil, this would presumbaly have destroyed its Net Exports function, leading to a dramatic reduction in output. Instead, the world as a whole is growing at 5.1%, levels never been seen before. This has happened because most developed countries have been able to offset the oil impact, more or less, by importing inexpensive manufactured goods from China and outsourcing once "non-tradable" activities to countries like India. Partly thanks to this and I stress only partly, Alan Greenspan will always have the legacy of having met his country's low inflation targets whilst also maintaing low interest rates!

Which is also why the ball is now squarely in the developing world's court. China and India in a sense, have it made. The growth potential is there to be taken. So far, China has done an impressive job of improving its growth sustainability level by investing in infrastructure and human capital. India lags well behind, but probably has marginally better institutions. Either way, both countries have an historic opportunity to lift themselves and the plight of their people. The next few years are crucial and its going to one hell of a ride!