THE AVENUE JULY 18, 2012
Earlier this week, the International Monetary Fund (IMF) lowered its growth forecast for the global economy for this year and next. It seems that both developed and developing countries are going to expand more slowly than expected earlier this year. In a pattern also seen in 2011, the United States is experiencing a loss of momentum and the Eurozone countries are still stuck in a sovereign debt quagmire. But now the large emerging markets (Brazil, India, and China) are growing at a slower rate than last year.
In this environment of heightened growth uncertainty, investors have been shuffling their money around, moving away from perceived risky bets (emerging markets, equity) to bonds of a few developed countries. In a world in which everything is judged on a relative basis, even the bonds of countries with fiscal consolidation problems in the medium-term, such the United States and Japan, have become safe haven investments.
However, these macro moves and predictions don’t capture the underlying variety in the growth patterns of metropolitan areas. The reality is that national economies are just an aggregation of a network of metropolitan economies--the places where most people live and consume and business locates and grows. Many of these metropolitan economies are large on their own. New York City’s regional economy is about the size of South Korea’s.
While the two-way linkage between the national economy and metropolitan economies is undeniable, metro areas often have different growth patterns than their nations, reflecting the unique local factors shaping metropolitan economies, such as capital, skills, demographic characteristics, and knowledge stocks.
In 2011, about half of the largest 200 metropolitan economies in the world grew faster than their countries. Houston and Dallas outpaced their national growth rate by the widest margin versus other metro areas, driven by the strong growth in the commodities (Houston) and business and financial services (Dallas) sectors. While China was cooling off already last year, Shanghai, Shenyang, and Tianjin managed to continue to grow in double digits. In the same time, a strong national showing can cover wide disparities among the growth rates of the country’s metros. In Germany, Stuttgart outpaced the national growth by 70 percent in 2010, but Hannover posted a growth rate about half of the nation’s.
There are likely to be bright metro spots in the troubled markets (e.g., Europe) just as there are likely to be weak metro spots in more robust markets (e.g., Middle East). Only by getting behind the national figures will businesses and policy makers make smart decisions that can lead nations and the global economy back to recovery and stability.