by Michael Roberts
As I forecast in the previous post
the International Monetary Fund (IMF) has lowered its 2014 forecast for
global economic growth. The IMF now says world real GDP will rise only
3.4% this year, 0.3% points below what it predicted in April. But, of
course, as it has done in very report, it reckoned growth would speed up
to 4%. It’s always jam tomorrow.
This rate of real GDP growth of 3-4% a year for the world economy is
well below the average growth rate before the Great Recession,
confirming the view that the major capitalist economies remain in what I
call a Long Depression. The IMF moaned that “robust demand
momentum has not yet emerged despite continued very low interest rates
and easing of brakes to the recovery, including from fiscal
consolidation or tight financial conditions”.
This slow growth is no longer confined to the major advanced
capitalist economies, as the so-called BRICs (Brazil, Russia, India,
China and South Africa) are slowing too. The advanced economies will
grow just 1.8% this year (up from 1.3% in 2013) and supposedly
accelerate to 2.4% in 2015. But real GDP growth in the emerging
economies will slow marginally this year to 4.6% from 4.7% in 2013, with
the hope of a pick-up to 5.2% in 2015. This includes China, which is
growing at 7.4% this year.
After a terrible first quarter, the US economy will grow only 1.7%
this year, although the pace is expected to pick up for the rest of this
year. The Eurozone economies remain weak with average real GDP growth
for the region barely above 1%. Japan will grow at just 1.6%.
IMF chief economist and sometime Keynesian, Olivier Blanchard, summed the IMF’s view:
“In short, the recovery continues. But it remains weak and is still in
need of strong policy support to strengthen both demand and
supply…Advanced economies are still confronted with high levels of
public and private debt, which act as brakes on the recovery.” So what was the answer? Blanchard called on governments to boost public investment to turn the global economy round.
Blanchard is shouting at windmills here. Business investment globally is hardly growing.
And yet public sector investment is being slashed as the easiest way of meeting the demands of fiscal austerity.
If more public investment is the answer to faster growth then it ain’t going to happen.
Much has been made in the British media that the UK economy will lead
the way as the fastest growing G7 economy this year, according to the
IMF expanding by 3.2%. The data for the second quarter have just come
out, with a growth rate of 3.1% yoy (although that could be revised down
a little later). So the UK economy has finally returned to its
pre-crisis peak in 2008 – that’s after six years, the slowest recovery
of the major economies!
The generally ‘unproductive’ services sector, including financial
services and real estate, is now 2.9% above 2008 levels, but the
production sector (manufacturing, mining etc) is still down 11.3% from
2008 and construction of new homes, roads, rail and offices is still
down 10.7% from the peak. So Britain’s property price boom that is
leading the ‘recovery’ is a product of low interest rates, government
subsidies and very low production by private building firms.
But if Mark Carney, the Bank of England governor, is to be believed,
the era of low interest rates is soon to end, with the BoE planning to
hike rates before the year’s end. I doubt that but if it happens and
interest rates start to rise, that could quickly burst the property
bubble as millions of Brits face sharply higher mortgage costs.
The Resolution Foundation calculates that the number of UK households
struggling to keep up with their mortgage payments will double to 2.3m
by 2018, even under the scenario of small, gradual interest rate rises
as suggested by the BoE. Even with interest rates at current historic
lows, one in five borrowers said they had difficulty paying their
mortgage. This was only slightly down on the one in four who said the
same in 1991, when base rates hit 13 per cent.
One in four households would face repayment problems if rates rose by
steps to a moderate 2.9% by 2018. And over one million would find
themselves in the unsustainable position of “debt peril”, in which more
than half their post-tax income went on repayments. Two in five
mortgage holders are really ‘mortgage prisoners’, unable to refinance
their home loans when rates rise, after stricter lending criteria came
into force in April. That would leave them stranded on the standard
variable rates charged by their lenders and “fully exposed” to further
And still no sign of significant recovery in business investment in productive sectors. Shouting at windmills.
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