After the credit boom comes the long and painful squeeze

The age of cheap food and energy is over for Britain as the world’s economic balance shifts

While America, Britain, Europe and Japan – the old powers – are struggling, plenty of other countries are making hay.

The credit crunch has crippled the West’s banking system at a time when record oil prices, which reached nearly $140 a barrel earlier this month, double their level of a year ago, are resulting in a massive transfer of wealth from the oil consumers to the oil producers: $1,800 billion (£926 billion) a year, according to Goldman Sachs. While Britain’s builders are suffering their deepest downturn in living memory, it is boom-time in the Gulf as the oil-rich states spend their revenues on stunning new skyscrapers and executive homes and apartments.

The highly unusual thing about the turmoil is that while the OECD’s members are skirting dangerously close to recession, those who are not members of the club are enjoying an economic party. America is growing by barely 1%; Britain, Europe and Japan by roughly 1.5%. But in the rest of the world, growth rates of more than 7% are common, particularly in China, India and commodity-rich nations such as Russia and Brazil.

There have been big transfers of wealth to oil producers before, most notably in the 1970s. Rarely, though, has the world looked as lopsided as it does now.

The unbalanced nature of the global economy is one reason why things are so tough. In the past, a slowdown in the advanced economies hit demand for raw materials and energy and brought down their price. The oil producers of Opec held sway during the 1970s, but the power to set prices essentially rested with western consumers. That has now changed dramatically.

Source: Sunday Times

Are we about to see a change in the balance of power from the old powers to the new economies?