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Why you shouldn't write off the U.S. economy just yet

A worker walks through a new Wal-Mart store in Chicago on this photo from January.

JOHN GRESS/JOHN GRESS/REUTERS

Plenty of bearish analysts see a long, hard slog for the United States, with several more years of lacklustre growth, high unemployment, flat housing, weakened financial institutions and worsening public finances. Some economy watchers draw comparisons to Japan and its two decades of stagnant growth, sideways stock market, high debt levels and bouts of deflation.

But if you believe, as I do, that the resilient U.S. economy is fully capable of finding a path to full recovery and decent, if not great, growth, you will get plenty of support from Ruchir Sharma, author of Breakout Nations, about the rising new stars of the global economy.

As head of emerging markets with Morgan Stanley Investment Management, Mr. Sharma may seem like an odd source to consult about prospects for the world's major industrial economy. But in a recent interview, he was more upbeat about the U.S. outlook than many of the people who keep close tabs on U.S. developments. Indeed, a recent poll showed that a majority of Americans already think China has the world's strongest economy, when, in fact, it is still firmly in a group of upper middle-income countries like Argentina, Mexico, Botswana and Kazakhstan.

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Mr. Sharma dismisses comparisons with Japan's lost decades. "The U.S. is beginning to distance itself from that parallel," he says emphatically. His reasons include:

- A weaker U.S. currency against those of its major trading partners, making U.S. exports more competitive than they have been in years.

- Huge spending on research and development. U.S.-based R&D still accounts for nearly 40 per cent of the global total. Japan spends a lot too, but much of it is geared to the domestic market, while U.S. companies focus on the global opportunities opened by advances in the likes of mobile phone applications, social networking and cloud computing.

- Favourable demographics. A growing population of young people, which Japan, much of Europe, Russia and even China can only envy.

- A manufacturing recovery, as overseas production and transportation costs rise, and the U.S. energy supply and cost advantage widens.

Now, all they have to do is figure out how to make their dysfunctional political system work and rein in runaway deficits.

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About the Author
Senior Economics Writer and Global Markets Columnist

Brian Milner is a senior economics writer and global markets columnist. In a long career at The Globe and Mail, he has covered diverse business beats, including international trade, the automotive industry, media, debt markets, banking and the business side of sports. More

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