This month's featured article
World's Great Excess of Supply
NAKAJIMA AtsushiChairman, RIETI
World economy with intensifying trend against globalization
My recent book, Era of Large Excess Economy, examines the world's supply-demand balance as an underlying factor of intensifying sentiments for anti-globalization and curbing migration, as seen in developments since 2016 such as Brexit (Britain's decision to leave the European Union) and the inauguration of Donald Trump as the U.S. president. The sudden drop in crude oil prices in early 2016 and the ongoing negative interest rate trend in Japan and Europe could also be explained from the perspective of excess supply of energy and money.
Since the bursting of the economic bubble in 1990, Japan has had to spend a lot of time processing the excess supply of labor, production capacity and debt. What has been happening to the world economy since the collapse of Lehman Brothers is, indeed, the global version of Japan's post-bubble struggles, characterized by the structural excess of labor, goods, money, and energy.
Changing the world economy
In the 2000s, low- and middle-income economies enjoyed some of the strongest growth in the post-war era until the collapse of the economic bubble. This was largely attributed to the fierce increase in exports from emerging economies, mainly in Asia, in response to the establishment of a global framework facilitating greater industrial production, led by China. Other factors include the subprime lending boom in the United States, the Chinese economy experiencing 10% growth, and price surge of crude oil and other resources. The emerging and developing economies' share in world trade also rose rapidly up until about 2010.
However, such factors that supported the strong growth of the world economy have gone and left developed nations and emerging economies to compete for a greater share in world trade. While emerging and developing economies have managed to restore a positive supply-demand balance, developed nations continue to suffer excess supply and demand shortfall.
In the post-Lehman world economy, the slower growth and economic disparity between countries have increased discontent among both developed nations and emerging economies, potentially triggering friction in international trade and foreign exchange. This tendency is becoming particularly evident in the United States, which is suffering from a massive international trade deficit.
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