by Michael Roberts
The latest high frequency indicators of economic activity in the
major economies suggest that global economic growth picked up a little
in the summer. Based on my measures of the so-called purchasing managers
indexes (PMIs), business activity in both the advanced capitalist
economies and the so-called emerging economies is up from a weaker first
This would suggest a global annualised growth rate of about 3.0-3.5%
for 2014. That’s better than the first quarter by some way, but still
below the rate achieved in the recovery from the Great Recession in
And, as has been documented in this blog and in many other places,
the economic recovery from the Great Recession has been the weakest of
all recoveries from slumps since the second world war. Since the end of
the Great Recession, world industrial production growth has averaged
only 40% of the rate achieved before the Great Recession and only 60% of
the long-term average. The productive sectors of world capitalism are
And that conclusion also applies to the US, the economy that has
achieved the best recovery of the all major capitalist economies (G7)
since 2009. The US GDP is still 5% pts below its ‘full potential’, even
though it has been the US economy that has led the way in this
‘recovery’. The last set of US GDP and employment figures, as I outlined
in a previous post (https://thenextrecession.wordpress.com/2014/08/29/the-us-recovery-the-long-depression-and-pax-americana/),
suggest that the US economy is expanding at little more than about 2% a
year, well below the post-war average of 3.3% and even more behind the
However, there is more talk among mainstream economists that the US,
at least, is now on a path of sustainable ‘normal’ growth, something I
questioned in a recent post
Gavyn Davies, former chief economist at Goldman Sachs and now a
columnist for the FT, reckons that the US recovery now looks
sustainable. Davies recognises that global financial crashes and slumps
combine to limit and delay economic recovery, but: “such recoveries
are slower than normal in their early phases, and they therefore take
much longer to bump into supply constraints. On average, such shocks are
followed by economic recoveries that last for 8-9 years, as compared to
5 years for the present US recovery. At about the current stage of the
recovery, they actually tend to speed up a bit.” http://blogs.ft.com/gavyndavies/.
And he quotes the work of his old employer, Goldman Sachs, which shows
that the US economy could at last be about to head back to the trend
growth rate of the past (see graph below).
The evidence of the weekly US economic indicator ECRI would also suggest that the US economy might be reaching a lift-off point.
But these activity surveys are the only evidence that I can find for
Davies’ assertion. US business investment shows little sign of a
significant pick-up and corporate profits have actually stopped rising.
Employment growth remains lacklustre and real wages for average
Americans are flat at best. Indeed, the latest Federal Reserve survey of
household finances shows that median family incomes in the US have
dropped so much in real terms since the Great Recession that they are
now no higher than they were 16 years ago!
So a Keynesian-style demand boost for the US economy from household
spending looks unlikely. If consumption and business investment remain
in the doldrums, so will the US economy.
The United Nations Commission for Trade and Development (UNCTAD) just
released its annual report on the global economy. UNCTAD remains gloomy
about a return to normal (http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=981). UNCTAD concludes “six
years after the onset of the global economic and financial crisis, the
world economy has not yet established a new sustainable growth regime.
With an expected growth between 2.5 and 3 per cent in 2014, the recovery
of global output remains weak.” It points out that “international
trade remains lacklustre. Merchandise trade grew at close to 2 per cent
in volume in 2012−2013 and the first few months of 2014, which is below
the growth of global output. Trade in services increased somewhat
faster, at around 5 per cent in 2013, without significantly changing the
overall picture. This lack of dynamism contrasts sharply with the two
decades preceding the crisis, when global trade in goods and services
expanded more than twice as fast as global output (at annual averages of
6.8 per cent and 3per cent respectively).“
UNCTAD, being an institution that is somewhat ‘off message’ compared
to the IMF and the World Bank, calls for coordinated global action by
governments to reverse ‘market liberalism’, reduce inequality and follow
the prescriptions of Pope Francis (see my post, http://thenextrecession.wordpress.com/2013/11/28/ayn-rand-pope-francis-and-the-philosophy-of-greed/)!
Don’t hold your breath.
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