The road ahead
Chinese consumers, like these heading to a Shanghai mall, continue to spend at a healthy pace
Economic crises never happen overnight. They are the result of years, even decades, of global economic change, policy errors and investor misjudgment. But there always seems to be that one moment — the Wall Street crash of 1929, the fall of the Thai baht in 1997 — when long-simmering trends coalesce to cause a dramatic loss of confidence. For what has turned out to be the worst recession in 70 years, that moment came on Sept. 15, 2008, when Lehman Brothers filed for bankruptcy and bankers around the world asked that most lethal of questions for world financial stability: If a bank as well known as Lehman can fail, who is safe? And off we went, spiraling with head-swimming speed into recession.
As terrified bankers refused to lend, global economic activity hit a wall. Ships lay idle as trade fell to a trickle. Protests erupted in Reykjavík as Iceland tumbled into bankruptcy. Even mighty China shuddered with fears of mass unrest as millions of workers were tossed from jobs at shuttered export factories. And as policy became alphabetized, with predictions that the recession would resemble a U, V or W, some worried the global economy would mimic the letter L — an interminably protracted period of meager or no growth much like the one that has plagued Japan for nearly 20 years.
That hasn't happened, and one year after the Lehman bankruptcy, as policymakers and pundits gather to take stock — the summer meeting of the World Economic Forum opens in Dalian, China, on Sept. 10 — it appears less and less likely that it will. Yes, economic conditions remain miserable. The International Monetary Fund predicts the world economy will contract 1.4% this year, the worst performance since the end of World War II. But everywhere economists can point to what they call "green shoots" sprouting in the gloom. Japan, Germany and France emerged from recession in the past quarter, and economists are busily upping forecasts for U.S. growth. After a brief pause, China has returned to its caffeinated growth path, lifting much of Asia with it. "The worst-case scenario of a complete economic and financial meltdown has clearly been avoided," says Julian Jessop, chief international economist at consulting firm Capital Economics in London. Jim O'Neill, chief economist at Goldman Sachs, proclaims: "We're out of recession globally."
Yet even if a recovery is on track, this recession will not be like most others, when what went down simply came back up. The downturn is having a fundamental impact on the globe's economic future. The world after the Great Recession won't be the world that existed before.
Perhaps most importantly, the recession has altered the role of the U.S. in the world economy. For decades, the U.S. consumer has been the primary driver of global growth. The inherent dangers of such dependence on one source had long been obvious, and now that the financial crisis has finally reined in debt-gorged Americans, the world has launched a quest to find replacements. To turn its citizens from savers to spenders, China doled out subsidies to buy cars and appliances and revved up efforts to construct a stronger social safety net. In Taiwan, where the export-oriented economy was among the worst hit, the government is promoting new domestically focused industries like tourism. "We were hard-hit by the shrinkage of the export market in the U.S.," Taiwan President Ma Ying-jeou told TIME. "So one lesson we learned is we should diversify our export markets."
The effort is showing signs of success. Asia is leading the way out of recession, with the help of the pocketbooks of its own consumers. The region's three largest countries — China, India and Indonesia — have remained buoyant through the downturn due in great part to domestic demand. The spending power of Asia's newly rich has stimulated the beginnings of a recovery throughout the continent. Continuing that trend has become a matter of official policy; India, for example, inked free-trade agreements with South Korea and the Association of Southeast Asian Nations in August. It is not fanciful to think that Asia is on its way to becoming a self-propelling trade bloc, decoupled from the U.S.