Some of the Global Slowdown’s Footprints

November 17, 2014

The euro area and Japanese economies together comprise about a fifth of global GDP.  In Japan, real GDP fell 1.2% between 3Q13 and 3Q14, and Euroland GDP in that span fell by 0.3%.  The annualized pace of growth during the past 36 months has been zero in the euro area and just 0.4% in Euroland. 

Chinese GDP expanded 7.3% over the past year and roughly 7.5% per annum over the last three years.  That’s 4.5 percentage points less than the pace in 2007-08 when the Great Recession hit a big portion of the global economy.  In China, which represents about 15% of world GDP, growth is now only about five-eighths as strong as it was in 2007-08.

Some other important emerging markets whose economies have slowed substantially are

  • Russia:  Real GDP rose some 1.6% per annum during the last three years versus 6.8% per year in 2007-8.
  • Brazil:   Real GDP has decelerated from 8.6% per year in 2007-8 to about 1.2% per year in 2012-14.
  • India:    Real GDP in the past three years of marginally more than 5% a year was down from a 9.5% in 2006-7, a drop of 46%.
  • Peru:    In contrast to the 8.8% in 2007-8, GDP these past three years climbed at about a 5.2% rate.

Given the broadness and magnitude of the global economy, price pressure on commodities was bound to decline appreciably.  Even economies that grew comparatively well in the past year like the United States and Britain continue to experience very subdued inflation.  Moreover, having good growth is a relative concept these days.  What constitutes as “good” depends on the context of comparison.  U.S. growth in the 20th century have been considerably slower than the norm during the second half of the 20th century.  Britain was badly hammered in the Great Recession and stumbled out of the gate in the ensuing recovery.  Wage behavior in that economy points to continuing slack.  The most misleading guide to inflationary pressure now has been the rapid expansion of central bank balance sheets.  There continues to be a disconnection between the expansion of high-powered central bank money and the lending of financial institutions.  Another disconnection can be found in a comparison of corporate profits and the propensity of the business sector to deploy cash into investment spending.  These imbalances have been amplified by the tightness of fiscal policies adopted to reduce government deficits. 

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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