Generating Economic Growth – How Governments can Help Successfully
| Published date | 01 May 2012 |
| DOI | http://doi.org/10.1111/j.1758-5899.2012.00181.x |
| Date | 01 May 2012 |
Generating Economic Growth – How
Governments can Help Successfully
Andreas Klasen
Pricewaterhouse Coopers, Partner, Head of Export and Investment Finance
This article points out challenges that have arisen in the
current economic situation, discusses the success of export
orientated and Small and Medium Enterprise (SME) dom-
inated countries such as Germany, analyses companies’
specific financing needs, and examines how governments
can successfully support growth in their economies
without creating additional direct fiscal burdens.
Economic challenges in 2012
The global economy was exposed to significant threats
at the end of last year, and the outlook for many Euro-
pean economies worsened considerably at the beginning
of 2012. According to the latest IMF world economic
outlook, advanced economies in particular are slowing
down and the euro area is expected to enter a mild
recession. The IMF expects global output to grow by just
3.25 per cent in 2012, 0.75 percentage points lower than
in its September 2011 forecasts. Concerns about the sus-
tainability of sovereign debt in the euro area are becom-
ing increasingly widespread, especially due to the
intensified crisis in countries like Greece, Portugal and
Spain. Weaker growth prospects in the western world
will also affect economic activity in emerging countries
such as Brazil, India and China. Although these countries
are still growing, with predicted annual GDP increases of
up to nine percent, the pace of growth is restrained. The
financial and sovereign debt crisis in Europe remains the
key economic challenge in 2012. The current situation
reveals immense and on going fiscal, financial and struc-
tural problems, which have not yet been adequately
resolved. The main underlying problems are: high level
sovereign, household and corporate debt levels in many
countries, euro area banks heavily exposed to sovereign
debt together with extensive differences in competitive-
ness within the euro area.
Finding and executing decisive as well as consistent
policies for solving the financial and sovereign debt crisis
in Europe is crucial. It has been extensively discussed that
fiscal adjustment and consolidation including compact
rules for deficits and debt burdens are necessary. The on
going debate on debt haircuts and reallocations, as well
as a different role for the European Central Bank (ECB) as
a lender of last resort, will have shortly to arrive at a con-
clusion. Moreover, it will be necessary to ensure sufficient
funding and linking of new resources through the Euro-
pean Financial Stability Facility (EFSF) and the European
Stability Mechanism (ESM). In this article, another crucial
lesson and one that is the main point for discussion, is
that countries that do not enhance their competitiveness
through innovative government financing instruments
are most vulnerable. Some economies have not only
failed to adjust their relative labour unit costs, but also to
control domestic costs and thus enhance productivity
(see, e.g. Davies, 2010). At the same time, the enormous
industrial development of emerging countries has
increased global competition on the basis of direct and
indirect government support without adequate global
standards. And there are countries proving the validity of
the current discussions. Germany for example is close to
internal balance and has a large trade surplus due to
strong competitiveness compared to weaker economies
in the euro area (Blundell-Wignall, 2012).
Key drivers for economic growth
Export as a reason for outstanding performance
Export plays an important role in economic develop-
ment, especially of highly industrialized countries. Export
oriented economies benefit from improved allocation of
scarce resources, the successful use of capacity, greater
economies of scale, advantages of sharing knowledge
and know-how as well as more innovation. Exports are
also crucial for the sustainable development of the glo-
bal economy. Especially during and after the 2008–09
financial crisis, international trade played a substantial
role in strengthening the economic recovery as a non
debt creating source of growth (Klasen, 2011). Countries
like China and India were able to develop competitive
export industries and have been rewarded with impres-
sive economic growth even during the crisis. Germany
has also recovered quickly from the 2008–09 recession
with its GDP surpassing the pre crisis level during 2011.
Even though there is a challenge to create more bal-
anced and long term growth opportunities, Germany’s
outstanding performance is the result of being one of
the world’s largest exporting nations based on a well
Global Policy Volume 3 . Issue 2 . May 2012
ª2012 London School of Economics and Political Science and John Wiley & Sons Ltd. Global Policy (2012) 3:2 doi: 10.1111/j.1758-5899.2012.00181.x
Practitioner Commentary
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