by Michael Roberts
Making predictions or forecasts about a national or the world
economy is fraught with failure. There are so many variables to consider
and the data available are often inadequate and biased. But the main
reason why economists are usually wrong with their forecasts and
predictions is that mainstream economics has no real theory or laws of
economics to build predictions on. Nevertheless, they carry on making
them, either as an act of hubris (we are so clever!) or because their
bosses and clients in investment banks demand it.
No wonder professional economists have predicted none of the last
seven recessions. Mainstream economists, being an apologia for the
success of market economies and capitalism, never predict a recession,
even when one is staring them in the face, as it did at the beginning of
2008. Indeed, since 2001, only an average 12.7% of economists surveyed
by James Montier from GMO were right about the following year’s economic
Anyway, I shall try and make some predictions and forecasts for 2015.
And at least my forecasts are based, I think, on relying on some
important underlying laws of motion of capitalism. That should make my
forecast a touch more accurate – I think. Economists, if they are
serious about making a science of political economy (perhaps a
contradiction in terms!), must make predictions as part of any test of
laws, as in natural sciences. It is not good enough for Marxist
economists just to say, well, ‘under capitalism there will be recurrent
crises (slumps)’. We have to do better than that: namely, at what stage
is capitalism going through; is it on an upswing or downswing; is a
slump close to hand or some way away?
Back in 2005, when I wrote much of my book, The Great Recession (published in November 2009), I forecast that a major slump was likely to take place in 2009-10. This is what I said: “There
has not been such a coincidence of cycles since 1991. And this time
(unlike 1991), it will be accompanied by the downwave in profitability
within the downwave in Kondratiev prices cycle. It is all at the bottom
of the hill in 2009-2010! That suggests we can expect a very severe
economic slump of a degree not seen since 1980-2 or more”.
As the quote suggests, I based this forecast or prediction on some
laws of motion in capitalism that I had identified. The first was the
long cycle in global production prices, namely a period of 27-36 years
of general upswing in commodity and production trade prices, followed by
a similar downswing. This is called the Kondratiev wave. I reckoned
that since 1982, the Kondratiev cycle was in a downswing that could last
until 2018. This would keep inflation low and indeed deflation of
prices would appear, placing downward pressure on global investment.
The second was that the domestic construction or property cycle (of
about 18 years) in major economies like the US and the UK was reaching
its peak and we could expect a housing bust around 2009.
Third, and most important, I had discerned that there was profit
cycle that could be identified for the major capitalist economies over
about 32-36 years from trough to trough. From the late 1990s, most
capitalist economies were experiencing a downwave in the profitability
of capital that was only being propped up by a credit boom and
fictitious capital profits. The downwave would come to a new trough
about 2015-16. And in such a downwave, more frequent and deep recessions
were likely, as they had been in the previous downwave of 1965-82: with
a weak one in 1969-70; a major international one in 1974-5 and finally
the double-dip slump of 1980-2. This created the conditions for a
revival in profitability (the so-called neoliberal period) that lasted
until the end of the century. Back in 2005-6, I reckoned the profit
downwave signalled at least another huge slump.
Finally, there was the Juglar cycle of growth, investment and
employment which seemed to last about 8-9 years from recession to
recession in modern economies. These recessions took place in
profitability upswings, but then they were weak and scarce (1958 or
1990). In downswings, they were more frequent and severe (1929-32,
1937-8 or 1974-5, 1980-2).
On that basis, I reckoned that all these cycles would come together
in a major slump around 2009-10, as we had not had all four cycles in a
downswing together before since the 1930. Well, I was slightly wrong:
the credit bubble burst in 2007 and the Great Recession came one year
earlier than I predicted, in 2008-9.
As we enter 2015, both the Kondratiev and profitability cycles are
still in a downwave, in my opinion, but the construction cycle has
turned up (in some cases leading the current weak ‘recovery’). But
another slump must still be on the agenda to enable sufficient
destruction of capital values to deliver a new upwave in profitability
and also see the end of Kondratiev downwave. If you like, the major
economies are halfway through a Long Depression, as in the 1880-1890s or
the 1930s. The 1974 slump was eventually followed with the 1980-2
slump; the 1929-32 slump was followed by a recovery and then another
slump in 1937-8. So on that basis, after the recovery of 2009-14, we can
expect another slump by around 2016-17. There – I have said it now.
But what of 2015? Well let’s start by reminding myself of what I said this time last year about 2014 (http://thenextrecession.wordpress.com/2013/12/30/faster-growth-in-2014/).
My general forecast for 2014 was that, contrary to the optimism of the
professional mainstream economists working for big money at the likes of
Goldman Sachs, the ‘global crawl’ would continue i.e. global economic
growth would continue to be weak and below average as it had been ever
since the end of the Great Recession in 2009. And so it has proved.
Back at the beginning of 2014, the IMF forecast a 3.6% expansion in
real GDP in the world economy. It will come in at just over 3%, well
below the average. The rich investment bankers at Deutsche Bank and
Goldman Sachs reckoned that the US economy would grow “above-trend”
in 2014. Well, it’s true that the US had a good third quarter of
growth, being the best performing capitalist economy since the end of
the Great Recession (see my post, http://thenextrecession.wordpress.com/2014/12/24/us-economy-ends-on-a-high-the-uk-le), but it will still achieve only about 2.5% growth, at best, in 2014, well below average trend growth of 3.3% since the 1980s.
As for the UK, I reported last year that the Conservative-led
government’s finance minister, George Osborne, was being lauded as a
hero because the UK economy would jump ahead in 2014. And indeed, up
until the latest data on growth, it seemed that the UK would achieve the
fastest expansion of the top G7 capitalist economies in 2014, at 3%.
However, such hopes have now been dashed and the UK economy will only
manage about 2.5-2.7% this year.
Even this growth has been based on government stimulus for
house-building and cheap credit. Investment in productive sectors has
been weak. Real GDP per person is still below the peak achieved in 2008
before the Great Recession. Investment in real terms is still 4% below,
manufacturing output 5% below and productivity per hour still over 1%
below its peak before the Great Recession. Britain is running a payments
deficit with the rest of the world equivalent to 6% of GDP, bigger than
the government deficit. Above all, net national disposable income per
head (after inflation) is some 6% below the peak and real weekly
earnings have fallen since the Tories took office in May 2010 in every
quarter but two – the longest fall in real wages since the Great
And it does not look any better in 2015. The housing boom in the UK
is beginning to fade and will expose the underlying weakness in the
productive sectors in 2015. Average house prices are rising at their
slowest rate for more than a year. And according to the Chartered
Institute of Personnel and Development (CIPD), UK wage growth is likely
to remain weak for at least another year because employers are finding
it easy to recruit and retain staff at current pay levels. Employers
surveyed in the autumn had an average of 50 applicants for every
low-skilled vacancy and 20 for every high-skilled vacancy, 40 per cent
of whom were suitable for the role. They also reported that job turnover
remained low. “If few employees are leaving, and most employers can
find suitable applicants for vacancies, the conditions required for
higher across-the-board pay rises are not being met,” said Mark Beatson, CIPD’s chief economist.
Indeed, that is the story for most capitalist economies in 2014
(Europe, Japan, the US and the UK): weak economic growth, poor business
investment and falling real incomes for the average household.
Last year I forecast a very weak Japanese economy and it has proved
to be even worse that I forecast, despite dollops of virtually
interest-free credit, fiscal stimulus packages and another election to
install Abenomics – the supposed answer to Japan’s woes (see my post, http://thenextrecession.wordpress.com/2014/10/13/japan-the-failure-of-abenomics/).
And lo and behold, as I write this, the Bank of Japan’s own economic activity survey, the Tankan, suggests that “Japan is going into a double dip”,
recession with only a small quarterly increase in GDP for the final
quarter of 2014 followed by a renewed contraction next year. In the
survey, large Japanese companies gave a score of 14 for current business
conditions and forecast a decline to 12 in three months’ time. For
small companies, the respective figures were 0 and -4.
The Abe government has launched yet another round of fiscal stimulus
measures. It’s going to cut corporate tax rates to try and encourage
Japanese companies to invest more and raise wages for their workers and
so boost demand. Some hope! Large companies have instead been building
up their cash reserves and keeping wages down.
And all this extra spending threatens the other major policy of
Abenomics – to get Japan’s huge public sector debt and deficits down.
The debt has not been a problem up to now because the interest rate on
that debt is near zero and Japan’s banks are pressured to buy government
bonds. But this means that little productive investment takes place and
if interest rates were to rise, Japan could face a serious debt crisis.
The government wanted to reduce its annual deficit by half in 2015 and
‘balance the books’ by the end of the decade. But the economy has been
so weak that it has been forced to hold back an increase in sales tax,
spend $28bn on projects and give new handouts to corporations. The
fiscal target is a joke. What is down the road will be a severe cut in
welfare and social benefits to pay for this.
As for Europe, there is no relief. Greece may have finally bottomed
the deepest slump in its modern history in 2014, but only after a 40%
fall in average living standards and the destruction of jobs, welfare,
health and public services. Now it is about to enter a major battle with
the EU leaders over how to recover (see below). Spain is still
recording record high unemployment levels and with little sign that the
productive sectors of the economy are turning up; Italy remains in a
depressed state. Only the German economy looks relatively better.
The global economy remains in a crawl and will do so in 2015 for one
good reason: the failure of business investment to leap forward. Goldman
Sachs reckoned this time last year that there would be a global
investment boom in 2014. That has proved to be a mirage in Europe,
Japan, the UK and in the major so-called emerging economies of China,
India, Brazil and Russia, where investment growth has slowed markedly or
collapsed, as in the case of Russia (see my post, http://thenextrecession.wordpress.com/2014/12/08/oil-the-rouble-and-the-spectre-of-deflation/).
The emerging markets of Brazil, Russia, India and China collectively
known as the BRICs — will likely grow in 2015 at their slowest pace in
six years, according to Oxford Economics. Only the US has shown some
pick-up in investment.
As I said last year, the reason that business investment has not
boomed is that in most economies average profitability remains below
levels before the Great Recession and below levels reached in the late
1990s. Most economies are still experiencing the downwave in the
profitability cycle, as explained above. Coupled with the downwave in
the Kondratiev cycle, that is why the global capitalist economy is in
what I call a Long Depression, with some years to run.
Let’s finish with a few predictions.
First, the failure of the Samaras government to get its candidate for
President elected by the Greek parliament has forced an election at the
end of January that the leftist Syriza party is likely to win, assuming
the public opinion polls remain as they are. Syriza will likely have to
form a coalition with smaller left and centrist parties. It is pledged
to renegotiate the debt burden that the previous government has built up
with the EU, some €322bn. This can never be paid off and remains a
millstone around the neck of the Greek economy and its people for
Syriza wants much of it written off. The EU leaders will play
hardball, if only because it is making Ireland and Portugal pay their
loans back in spades and it won’t want to set a precedent for other Euro
debtors. The existing Troika programme funds are supposed to fund the
Greek government from February as long as the government agrees to more
fiscal austerity. Syriza claims it will do no such thing, so there
appears to an impasse with Greece running out of cash by the summer.
I reckon that this process will spin out through the next few months
with nothing resolved. There is a way out for the EU leaders if they
want to keep Greece in the euro: they could eventually agree to a
perpetual rollover of the debt – so the debt stays on Greek books but
there’s nothing to pay for the foreseeable future. This could be sold as
the ‘Greek exception’. Alternatively, Syriza reaches a compromise
agreement to cover the debt. Either way, my prediction is that Greece
will still be in the Eurozone this time next year.
What’s going to be interesting in 2015 is the number of elections in
key peripheral Eurozone states coming up. Apart from Greece, Ireland and
probably Italy will have elections, where weak centrist governments
will try to ‘hold the line’ against populist parties. I will consider
the economic programmes of leftist parties like Syriza and Podemos in
And then there is the UK with a general election in May. I have made
three predictions about the UK in the past. The first was that Scotland
would vote to stay in the United Kingdom in the referendum last
September (see my post, http://thenextrecession.wordpress.com/2014/09/19/scotland-one-prediction-right).
That happened. The second was that the Conservative-led coalition would
be returned to office (probably the Liberals in tow again). And the
third was that the British people would vote to stay in the EU if there
is referendum on that in 2017. I’ll explain my prediction for the May
election in a post nearer the date.
For 2015, I have launched a Facebook site so that you can keep up to date with my posts and other events and papers. See
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