August 2, 2013

Tepid Job Growth Spreading to Developing Economies

As U.S. jobs outlook remains lukewarm, The Economist reports emerging market fever is cooling

Joblessness is coming down, albeit slowly in the U.S. (Photo: AP) Joblessness is coming down, albeit slowly in the U.S. (Photo: AP)

The unemployment rate fell slightly in July to 7.4%, as the U.S. economy added 162,000 jobs. The number was short of the 184,000 jobs economists had predicted and far below the 202,000 average monthly gain for the first half of 2013.  

The Labor Department also reduced its previous employment figures for May and June.

However, while the United States and much of the developed world continue to struggle with stagnant GDP and job growth, The Economist reported last week a similar picture is beginning to show up in emerging economies.

“This year will be the first in which emerging markets account for more than half of world GDP on the basis of purchasing power, according to the International Monetary Fund,” the periodical optimistically begins. “In 1990, they accounted for less than a third of a much smaller total.”

From 2003 to 2011, it notes, the share of world output provided by the emerging economies grew at more than a percentage point a year. The remarkably rapid growth the world has seen in these two decades marks the biggest economic transformation in modern history, and violating Sir John Templeton’s famous axiom, the magazine claims it will likely “never be seen again.”

Citing a recent study by Arvind Subramanian and Martin Kessler of the Washington-based think tank Peterson Institute, it adds that from 1960 to the late 1990s just 30% of countries in the developing world for which figures are available managed to increase their output per person faster than America did, thus achieving what is called “catch-up growth.”

“That catching up was somewhat lackadaisical: the gap closed at just 1.5% a year. From the late 1990s, however, the tables were turned. The researchers found 73% of developing countries managing to outpace America, and doing so on average by 3.3% a year. Some of this was due to slower growth in America; most was not.”

Now, however, while the shift to emerging markets will continue, its most “tumultuous phase seems to have more or less reached its end,” the magazine argues. “Growth rates in all the BRICs have dropped. The nature of their growth is in the process of changing, too, and its new mode will have fewer direct effects on the rest of the world. The likelihood of growth in other emerging economies having an effect in the near future comparable to that of the BRICs in the recent past is low; they do not have the potential for catch-up the BRICs had in the 1990s and 2000s.”

And, it adds, the BRICs’ growth has changed “the rest of the world economy in ways that will dampen the disruptive effects of any similar surge in the future. The emerging giants will grow larger, and their ranks will swell; but their tread will no longer shake the Earth as once it did.”

While developing economies still create “hundreds of millions of new workers in coming years,” the numbers will be tempered by aging demographics in many countries, specifically China.

“India, with more favorable demographics, is struggling to create enough employment; it added no net new jobs in 2004-2005 and 2009-2010,” it concludes, citing a recent survey. “Big demographic booms are brewing elsewhere: Nigeria, for example, may be more populous than America in less than 40 years. But such growth will have its peak impact only decades from now.”

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