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Emerging Nations Powering Global Economic Boom

The expansion is the strongest since the 1970s, with China, India and Russia setting the pace. But many U.S. workers are left behind.

May 14, 2006|Tom Petruno | Times Staff Writer

The global economy is on a growth streak that is shaping up to be the broadest and strongest expansion in more than three decades.

Rising spending and investment by consumers and businesses worldwide are boosting national economies on every continent, pushing down unemployment rates in many countries and lifting business earnings and confidence.

Of 60 nations tracked by investment firm Bridgewater Associates, not one is in recession -- the first time that has been true since 1969.

Yet this is a different kind of boom from any other in the post-World War II era, analysts say. The soaring economies of China, India, Russia, Brazil and other emerging nations increasingly are setting the pace, overshadowing the slower growth of the United States, Europe and Japan, where the benefits of the expansion have eluded many workers.

"This is the first recovery where developing economies are playing a dominant role," said James Paulsen, chief strategist at Wells Capital Management in Minneapolis, which manages money for big investors such as pension funds.

The trend is being driven by free trade, which has created millions of jobs in emerging nations in recent years, fueling stunning new wealth in those countries.

China's meteoric rise has been well-documented, but the boom has spread far and wide to include much of the rest of Asia, as well as Latin America, Eastern Europe and Africa.

With commodity exports and tourism surging, the South African economy grew about 5% last year, adjusted for inflation. That was nearly four times the average growth rate of the major European countries.

The township of Soweto in South Africa, once on the front line in the anti-apartheid struggle, today is the scene of a more subtle revolution: the transformation into an upwardly mobile, black middle-class neighborhood where wine tastings and car shows are regular events and where a 700,000-square-foot mall is under construction.

"Business is good," says retired teacher Lolo Mabitsela, 69, who runs a thriving Soweto bed-and-breakfast. Foreign tourists and white South Africans who once avoided Soweto now book rooms at her inn, she says.

In India, economic deregulation and a fast-growing technology service sector are powering consumer demand.

College teacher Rakhi Maral notes that local stores in her city of New Delhi now stock expensive imported perfumes that in years past could be found only at duty-free shops.

"People are being paid better, hence the buying capacity is more," she says.

For Russia, the global hunger for energy and other raw materials has created a financial windfall. The country has become the world's largest exporter of natural gas and second-largest exporter of oil, as well as a major supplier of metals, timber and other resources.

Wealth from those exports now is filtering down to drive growth in the country's retail and consumer goods sectors, said Al Breach, chief economist at investment bank Brunswick UBS in Moscow.

"Culturally, you always had a middle class here, but it was extremely poor," Breach said. "Now, increasingly, that class is getting money, especially the younger generation."

The simplest yardstick of economic success is a country's growth in real gross domestic product, or how fast its total output of goods and services is rising after inflation. For the developing world, that growth is expected to be 6.9% this year -- more than double the 3% pace of the developed world, according to the International Monetary Fund.

By contrast, in 1999, emerging economies grew 3.8%, relatively close to the 3.2% rate of developed nations.

The breakaway growth of the developing world is why the global economy overall is on track to post its fourth straight year of 4%-plus expansion, the IMF estimates. The last such streak was in the early 1970s.

With the developed world's growth lagging well behind that of emerging economies, however, workers in industrialized nations may not feel like they are part of the global boom. Wages in the United States, for example, have been slow to rise in recent years. In Western Europe, unemployment rates remain stubbornly high.

The U.S. and other countries in the developed world have lost jobs to emerging nations as a result of free trade, triggering protectionist sentiment here and in Europe.

Also, zooming prices for oil and other commodities, which have enriched the developing nations that export them, have come largely at the expense of the West.

"We can't really see an improvement in living standards for a large segment of the population" in industrialized nations, said C. Fred Bergsten, director of the Institute for International Economics in Washington.

There is no question that some of the developing world's gains are, in effect, a transfer of wealth from the industrialized world, but experts say emerging countries' success also is flowing back to the U.S., Europe and Japan -- which combined still account for about two-thirds of the global economy.

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