by Michael Roberts
The latest economic data for the main capitalist economies is
not encouraging for the optimists that the world economy is set to
resume normal service.
Last week, we had the first estimate for US GDP for the period April to June (see my post, http://thenextrecession.wordpress.com/2014/08/01/the-risk-of-another-1937/
). The US economy has been the better-performing top economy over the
last few years. But even here, real GDP growth was just 2% yoy, well
below the long-term average since 1946 of 3.3% a year.
The recovery has been weak. In the five years after the Great
Depression troughed in 1933, US nominal GDP (that’s before inflation is
deducted) rose 52%. In the five years since the end of the Great
Recession in mid-2009, US nominal GDP has risen only 18%. The gap
between US nominal GDP and where it would have been without the Great
Recession remains wide – and even getting wider.
Indeed, US economic growth appears to be in secular decline. In the
1980s and 1990s, the US economy generated nearly 40 quarters where GDP
was 4% or higher on an annualised quarter or quarter basis (not yoy).
But there have been just seven of these “hypergrowth” quarters since
2000, if you include the last quarter. But that will be revised down
when the huge rise in stockpiles of goods that were included in the 4%
quarterly figure are reduced. So US real GDP growth was less than 2% yoy
last quarter. And yesterday, figures for American spending in shops
came out and they were not pretty either. Retail sales were flat in July
and the yoy rate slowed from 4.3% in June to 3.7% in July.
Things are far worse elsewhere. The data from the Eurozone are
appalling. Industrial production has been shrinking for some time, down
1.1% in May over April and another 0.3% down in June over May. Today,
the figures for real GDP growth for April to June came out – and there
was little or no growth. The French economy was flat for the whole of
the first half of 2014, while business investment fell 0.8% in the
latest quarter. The French government has accordingly reduced its
previously optimistic forecast for real GDP growth of 1.1% for this year
to 0.5%. France may be lucky to see even that.
Even more worrying, the key economy in the area, Germany, contracted
in the second quarter, falling 0.2% from April to June. If you put this
together with a contraction in Italy already reported and growth of just
0.5-0.6% in the Netherlands, Spain and Portugal and yet another
contraction in Greece, the whole Eurozone area failed to grow at all in
the last quarter and rose just 0.7% over the last 12 months.
Japan too is a very poor shape, refuting the hopes and talk that Abenomics could turn the Japanese economy around (see my post, http://thenextrecession.wordpress.com/2014/07/30/abenomics-raises-profitability-and-misery/).
The huge hike in sales tax imposed by the Abe government in April,
brought in to try and reduce the Japanese government’s large budget
deficits and debt, has led to a collapse in consumer spending much
greater than expected. In Q2’14, Japan’s GDP fell at an annualised rate
of 6.8%, the biggest fall since the 2011 earthquake and tsunami.
Japanese households cut their spending by 18.7% on an annualised basis!
And businesses cut investment by 9.7% annualised. Indeed, investment in
new machinery is down 3% from this time last year. Housing investment
fell by 35%! And this GDP figure included a 4% rise in the stockpile of
goods. If this is excluded, then the contraction was even worse.
Now supposedly, the UK economy is the shining star in these clouds of
doom elsewhere. I have had already cast some doubt about the nature and
sustainability of the apparent pick-up in economic growth in the
British economy (see my posts, http://thenextrecession.wordpress.com/2014/07/18/uk-cost-of-living-crisis-continues/ and
At his press conference at the Bank of England yesterday on the
release of the BoE’s quarterly inflation report, our overpaid governor
Mark Carney raised his growth forecast for 2014 from 3.4% to 3.5%. A
positive boom! But even the BoE recognised that this could be a one-off.
Its own forecast for growth in future years is lower. Carney claimed
that the ‘recovery was broad-based’, but this is difficult to justify,
when we see that GDP per person is still well below the 2007 peak, that
manufacturing output is even further down and above all, average real
wages continue to decline.
Indeed, nominal pay for employees (that’s before the impact of
inflation and taxes) fell in the period April to June by 0.2% (black
line in graph below). And yet inflation is rising by 1.9% yoy (yellow
line in graph below). So wages are being outstripped by prices in the
shops, in utilities and other daily expenses. Average real incomes have
been falling since the Great Recession and there is little sign of any
‘recovery’ for most British households. Indeed, the Bank of England
actually reduced its forecast for wage growth this year to just 1.25%
from a previous 2.5%. Real wages will continue to fall.
On the other hand the BoE expects the official unemployment rate to
fall further towards 5.5%, but this rate would be still higher than
before the Great Recession – that will be the new normal for jobs in the
In previous posts, I have discussed why the UK unemployment has
fallen even though economic growth has been weak since the Great
Recession. But the key consequence of this has been the abysmal state of
productivity per worker in the UK, which remains well below pre-crisis
levels. More people in Britain have been getting jobs, but nearly half
of these are in self-employment where incomes are generally lower than
in full-time employment and where productivity (value per worker) is
poor, even though many self-employed work long hours 9for little
reward). Large corporations are flush with cash but unwilling to invest
in new technology or R&D that could boost productivity.
Flat productivity growth plus even employment growth of 1% a year
(very strong, but achieved in the six years before the Great Recession),
means long-term real GDP growth of just 1% a year – and that’s assuming
no new recessions or slumps. No return to normal there.
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