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World economy at the half-year point

posted 6 May 2012, 07:31 by Admin uk   [ updated 23 Jul 2012, 13:55 ]
  By Michael Roberts

  We are at the halfway point in 2012 and it is not looking good for the world economy.  The US jobs figures for the month of June came out on Friday and only 80,000 net new jobs were created in the whole of the US.  The average increases for the last three months of 75k a month are nowhere near enough to get down a stubborn official unemployment rate of 8.2%. If you exclude the reductions in public sector employment, the private sector did little better.  Indeed, goods producing industry jobs have declined in the last three months.

Readers of this blog will know that I like to look at a range of high-frequency activity indicators to judge where the world economy is going.  First, I look at US index of the survey of corporate purchasing managers view of activity in their companies.  I have combined the manufacturing and services ISM indexes, as they are called, into one composite index.  This is what it shows for up to June 2012.

It seems that the US economy is still in the range of ‘low growth’ and not in ‘recession’ yet, but the direction is down.

There is an even more frequent (weekly) index, but less reliable, that is compiled by a research company, ECRI, which takes a number of variables to try and measure US economic activity.  The outcome for up to end-June looks like this.

Still just above recession levels – but only just.

And the US is in the best shape of the major capitalist economies, with real GDP growing at about 2% a year rate.  In Europe, most economies are either flat or contracting, the exception being northern Europe.  Japan too is crawling out of its tsunami and earthquake crisis.  If we look at purchasing managers indices for all these major economies, this is what it looks like.

On these measures, the world economy is contracting for the first time since 2009, along with Japan, China and, of course, the Eurozone.  The UK is basically flat.

There has been much talk that China is heading for a hard landing.  I have not thought so up to now (see my post, Which way for China?, 19 March 2012).  But  China’s goods producers reported an eighth successive month-on-month deterioration in operating conditions during June, as output, incoming new orders and employment continued to decrease. China’s composite PMI inched lower from 48.4 to 48.2 in June, a level indicative of a modest pace of deterioration in business conditions.

So is China going into a slump after all?  Well, I have tried to compile a forward-looking indicator for China’s economy based on an average movement of a range of key economic variables.  This is what that shows.

So contraction is under way but China is not yet in a slump.  Contraction means a slowing of economic growth from double-digits to an 8% rate or lower.  A slump means economic growth of less than 5-6% as it reached back in 2008.   The Chinese government has now reacted to this by cutting interest rates but has not opted yet for a big fiscal spending package as it did in 2009 to revive growth.  So the issue of China’s landing remains open, in my view.

One firm conclusion is that world capitalism is still unable to restore sustained economic growth some four years after the Great Recession began.  It is less clear whether it is heading back into a slump after its weak recovery from mid-2009.  But the risks are rising.

July 8, 2012

The long depression

 by Michael Roberts

                        The latest high frequency data on the state of the world economy are now available for April.  I use a combined index of activity in manufacturing and services in the major capitalist economies based on the so-called purchasing managers indexes (PMIs).  Starting with the US, it shows that the US is still in a low-growth trajectory and not in recession or boom, although the direction is downwards.

This is confirmed by the even more frequent, but less reliable, ECRI weekly index.

And for the world as a whole and other regions, it is much the same story – when the PMI for a country is above 50, it is expanding and below means contraction.

Only the Eurozone is in a confirmed recession.  Even the UK is still in a low growth expansion, contrary to the first estimates for UK GDP in Q1’12 that indicated that it was in a technical recession (see my post, Britain’s technical recession, 25 April 2012).  It is likely that those UK GDP figures will be revised up to a small positive position.  But overall, it suggests that the world economy is growing at about 3% a year, with the US at around 2% and the rest at under 1%.  The graphic below shows where the G7 top capitalist economies were sitting at the end of 2011.

World capitalism’s recovery from the Great Recession is the weakest turnaround from a slump since the 1930s. In effect, world capitalism, at least its mature capitalist economies, is in a long depression.  In many economies, the previous peak in output before the slump has not been surpassed.  Only the GDPs of North America and Germany have achieved that.  The rest of Europe and Japan are still in a slough of despond some four years since the Great Recession began.

Even more defining is the sheer waste of the capitalist mode of production.  Factories are idle or under-used, many more millions are out of work (labour participation rates in the major economies have never been lower) and output has been lost forever.  After the deep ‘double-dip’ recession of the early 1980s, the US economy took three years to get back to the level of GDP that it would have achieved if there had been no slump.  Potential output of some $1 trillion was lost forever (that’s the gap between actual output and potential output from 1982 to 1985 in the graph below).

But this time it ‘s much worse.  About $1.5 trillion dollars of output (or over 10% of potential GDP) was lost in the Great Recession of 2008-9, but the recovery is so weak this time that output cannot catch up to where it would have been without the slump and there is now a permanent loss of output of nearly $1 trillion a year (6% of potential GDP) and no sign that the gap is going to be closed.   And this is just the US economy, which is doing relatively better than others.

And, despite all the ‘deleveraging’ of ‘excessive debt’ , massive job losses and the shrinking of assets, profit growth in the major economies continues to slow.  US profits are still growing at a 7% annual pace, but in Germany, the UK and Japan, profits are now contracting.

The depression in Europe is particularly severe.  The Eurozone unemployment rate has hit 10.9% — its highest level since the euro was launched in 1999.

The long depression continues.

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