GDP

An interesting post in the FT by a leading economist examines the growing concern that seven years after the financial crisis and the use of unprecedented stimulus measures and extended near-zero interest rates,the world may be stuck in a long-term trend of low growth.

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The author, Gavin Davis, is not to be dismissed as just another academic, he was head of the global economics department at Goldman Sachs from 1987-2001, and served as an economic policy adviser to the British government in addition to being an external adviser to the British Treasury.

Chinese, Japanese Growth Down

Global growth is unquestionably slowing.

The three largest independent economies are all struggling to achieve strong growth. Chinese activity dipped sharply last month, and the estimated rate of growth is now 5.3%, well below the government’s 7% target for the 2015 calendar year leading many to hope yet another stimulus is on the way, but so far we have not seen much more than a relaxation in lending and reductions in interest rates.

Japanese growth remains weak in spite of Abenomics. Remarkably, after recessions in parts of the Eurozone the only major economy showing some resilience is the EU where overall growth could be approaching 1.8% in spite of excessive austerity measures.

Davis cites a colleague’s research that tracks two measures of US activity used to summarize the “state of the economic cycle.”

The Slow Normal

According to his models, the probability that the economy is now in a state of strong expansion has dropped from 70% in December 2014 to under 40% now. Over the same period, the probability that the economy is in recession has risen from zero to 14% – still low he admits, but not entirely negligible.

The expectation is that US growth will rebound in Q2 but will not be enough to raise 2015 growth as a whole and could well result in a downgrade for the year as a whole. It’s hard to see China, the engine of growth for the last ten years or more, suddenly creating the level of demand that will significantly lift global GDP in the next few years.

US Growth Nearly Halted

In the US, the official GDP growth rate in Q1 was only 0.2%, while Davis’ model of underlying activity is showing 1.8%. This may, as in some previous years, be more down to a weak first quarter due to weather but the real worry is that the rate of productivity growth is slowing and with it the potential for a long-term rise in living standards and, hence, growth. The long-term growth rate of the US economy has fallen from 3.3% in 2003 to 2.3% now.

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It almost seems counter-intuitive, but when poor growth results come out of China there can often be a mini rally in prices as investors bet poor growth will necessarily mean more stimulus by Beijing.

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As a recent article in the Telegraph newspaper noted, the final figures for 2014 suggest China will probably turn in a 7.4% growth rate for last year, the lowest since 1990. Not surprisingly iron ore, coal and copper – commodities for which China is by far the world’s largest consumer – have all fallen in 2014. Take iron ore for example, slowing demand and rising supply have resulted in prices falling by 47% last year to $71 per ton now.

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The last reason China’s screwed? Absolute population. (Read the Top 3 Reasons in Part One here.) The number of Chinese is likely to peak at below 1.4 billion sometime after 2020. Today, there are four Chinese for every American. By the end of the century, that ratio could fall to between 1.9 and 1.25, according […]

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Some would argue the super-cycle is already over and in terms of double-digit growth, it almost certainly is. But even Chinese growth of 7% today is sucking up commodities at a faster rate than 10-12% was in 2007, simply because it is 7% of a much bigger GDP number. Miners have taken heart from recent […]

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Read the first part of this post here.  Would the US, Britain, or Japan change policy at the request of foreign powers because the foreign powers were, relatively, not doing as well? I don’t think so, especially if that meant lower support for exporters and industry, stoking inflation, and boosting internal consumption when the economy […]

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What do you do when the US government shutdown prevents data releases? Start quoting Benjamin Disraeli. That’s exactly what Bill Strauss, chief economist at the Federal Reserve Bank of Chicago, resorted to doing during his keynote speech at Day One of our conference, Commodity/PROcurement EDGE. As Disraeli said, “there are lies, damn lies and statistics,” […]

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How advanced is advanced manufacturing, really? Perhaps the real question is, will advanced manufacturing advance the economy overall, and contribute enough to make US industries sustainable in our global environment? Alright, enough advancement. Let’s take a look at a recent NPR article’s take on Chicago ­­– the fair city we publish from – and its […]

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In Part One, we began looking at the decline in interest-rate spreads between sovereign bonds of vulnerable countries and German Bunds. Moving to GDP, in the fourth quarter of last year, Eurozone aggregate gross domestic product was still 3 percent below its pre-crisis peak, while US GDP was 2.4 percent above it. In the same period, […]

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The markets seem to be risk-on this year – equities are up and while no one is forecasting a rapid return to growth in Europe, many are saying the crisis is over, not least of them Mario Draghi of the European Central Bank. But according to Eurostat, Q4 2012 saw the Eurozone economy shrink by […]

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MetalMiner welcomes guest commentary from Pepe Valderrama of Fullstep. Recent media coverage paints a dreadful picture of Spain’s current economic condition and outlook. Years of excess growth based on an enormous housing bubble and fueled by unusually loose monetary conditions — which burst in 2007 — seem to have brought the country to its knees. […]

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