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The world is watching the US - Views on News from Equitymaster
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  • Aug 4, 2009

    The world is watching the US

    While it will be a while before the US economy gets back on its feet, the good news seems to be that the worst may be over for the world's largest economy. As reported on Moneynews, the IMF expects US' GDP to shrink by 2.6% in 2009 and then rise by 0.8% in 2010. Obviously, the stimulus packages announced by the Obama administration appear to have played a significant role in lending some semblance of stability to the economy. However, there are still many challenges that still persist. One is that unemployment has shown no signs of abating and therefore unless incomes of the people do not pick up, consumption, the biggest driver of the US economy will remain subdued. The most important and difficult issue facing the US government is the timing with respect to unwinding of the fiscal and monetary stimulus measures. Unless and until there are signs that a sustainable recovery is on the cards, the US exit from stimulus program would have to wait. And the problem is that nobody knows when a sustainable recovery will actually take place other than that it will be gradual and painful.

    A recovery in the US will also do the global economy a world of good for it would mean a pickup in global trade and a booster shot to many countries around the world, mainly those who rely on exports. And while India is not as dependent as some other Asian economies on exports as it has a robust domestic market, a revival in exports will certainly help now more than ever as it has the problem of deficient monsoons to deal with. But given the state of the developed nations at present, a full-fledged export recovery does not appear to happen anytime soon.

    Paying the price for cheaper drugs
    Healthcare is an important issue for most of the nations across the world and 'affordable healthcare' the most important of them all. So who is paying the price for cheaper drugs around the world? Well, it is the US. With mounting research budgets on one hand and government pressure to reduce costs on the other, global pharma companies are finding it increasingly difficult to recover their costs of R&D. What is more, while prices of drugs in the US are freely determined, elsewhere across the world, it is the government which decides them, meaning that people outside of the US are getting medicines for which bulk of the R&D has been done in the US.

    The problem is that Big Pharma are not able to replenish their pipelines with new drugs that can cover R&D costs or for that matter ward off the threat of generic competition. So they are either going in for big ticket mergers or acquiring promising drug pipelines or smaller biotech companies in need of funds. Indian companies focusing more on generics stand to benefit in terms of the increased focus on affordable healthcare and the potential in terms of the number of drugs going off patent in the future. But of course, this comes at a heavy price, namely increasing competition and brutal price erosion.



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