Opinion: The shine of the star performer is fading… understand the real reason for the pain of terrorist sympathizer Trudeau.

Author: Ruchir Sharma
At a time when the two largest economies, the US and India, are boasting about their enduring strength, it is appropriate to look at countries that were long ago seen as star performers. But now they are breaking up. All of these are among the world’s 50 largest economies and have experienced a sharp decline in real per capita income growth and a decline in their share in global GDP so far this decade. From Canada and Germany to South Africa, Thailand and Chile, these countries are losing their shine. Economic success is hard, maintaining it is even harder; The stars of today are not necessarily the stars of tomorrow.

Canada
Widely praised for its handling of the 2008 global financial crisis, Canada fell out of step with changing times as the world moved forward, driven by big tech rather than commodities. Canada’s GDP per capita has been declining by 0.4% every year since 2020. This is the worst rate for any developed economy in the top 50. Well, to some extent the government is taking the economy forward. After growing very slowly in the previous decade, jobs in the private sector have grown much faster than the public sector this decade.

Private sector action is now largely confined to the property market, which has little to do with productivity and prosperity. Many young people cannot afford to buy in one of the most expensive housing markets in the world. In the name of digital success, Canadians take the name of Shopify. The online store is the only tech name among the country’s 10 largest companies, and it is trading at half its 2021 peak. Those wondering why Justin Trudeau broke protocol last week by publicly and bluntly accusing India of murder on Canadian soil may want to consider this old political strategy: when faced with unhappy voters at home. If you have to, divert attention with rivals abroad.

chile
Chile’s aura, praised as a model of smart, East-Asian-style government in Latin America since the 1990s, has vanished. It is now in the headlines for political conflict over failed attempts to reform the country’s constitution. Shortfalls in tax collections have decimated public services, leading to violent street protests. Expanding red tape – the time it takes to get approval for new investment has doubled over the past decade to about 20 months – is driving investors away.

Manufacturing industries remain small compared to emerging global powers. Mining products, primarily copper, still account for most of its exports and part of the wealth of billionaires, making Chile look more like an old-fashioned commodity economy than an East Asian star.

Germany
Germany’s per capita income growth has fallen from 1.6% over the past decade to less than zero over the past few years. During the pandemic, Germany looked prosperous and resilient, poised to excel in the post-Covid world. It now looks set to fail due to its heavy dependence on exports to China and energy imports from Russia. The Ukraine war has slowed Russian imports. By closing its nuclear plants and blocking other alternatives to fossil fuels with heavy regulation, Germany has deprived its industrial economy of cheap electricity. Investment has not contributed to growth in recent years, and industrial productivity is declining at a shocking annual rate of 5%. Suddenly the future of the Mittelstand – the network of manufacturers that has long been the engine of German growth – looks bleak.

South Africa
In 2010, South Africa was added to the grouping of Brazil, Russia, India and China to form BRICS. The largest economy on its home continent, resource-rich South Africa was driven by a commodities boom that endured over the next decade. After South Africa gained independence, the African National Congress ruled for 30 years, but its economic dysfunction did not diminish. Shockingly high youth unemployment, long-running welfare schemes, deep inequality and weak investment persist. So it was no surprise when voters dealt the ANC at least a blow in May, depriving it of a clear parliamentary majority for the first time. As a result, economic revival has also been partial.

The South African currency rand has strengthened slightly, but at around 18 to the dollar is still well below its peak during the commodity boom of the 2000s. The IMF has raised its forecasts for GDP per capita over the next five years, but it is still expected to contract (at a rate of negative 0.2%).

Investor interest in South African markets has been rekindled, but not enough to generate significant foreign inflows. And real optimism is unlikely to come until a truly reformist party comes into government.

Thailand
Thailand, once a leader of the ‘Asian Tigers’ before it got bogged down by debt in the 1998 crisis, is now the smallest. It is the only former Tiger to see a decline in per capita GDP this decade. Thailand has the highest income inequality of any country in the region, and an disproportionate concentration of poverty in rural areas – where 79% of the Thai poor live. The recent national election did little to change the political climate, which remains dominated by a long-running battle between the rural poor and Bangkok’s elite, leading to policy paralysis, and public debate. focuses on how to distribute the economic pie – not how to expand it. Investment is weak, and productivity growth is stagnant. Despite efforts to transform its prime location on global trade routes into a factory hub, Thailand is losing out to new rivals such as Vietnam.

The point here is not that smart countries somehow became stupid. It is that the path to development has hidden traps that can befall countries at every income level, from middle to rich. One fundamental mistake or misstep, and any country can find itself stuck – unless it finds the leadership and vision to find a way out. For existing stars like India, the message is a warning: learn from rivals’ mistakes and don’t take growth for granted.

(The author is a global investor)