The zombies arrived at the G20 meeting in Hamburg this weekend – and I don’t mean the G20 leaders but a group called Gestalten, who dressed as zombies and walked through the streets. The group said they wanted the G20 to stand for a more open, egalitarian society, rather than power in the hands of the few; and wanted to send a symbol of solidarity and political participation out to the world.
There was little sign of solidarity among the leaders of the
capitalist world in Hamburg. US President Donald Trump, after flying in
to see the right-wing president of Poland (as a snub to Putin?), made
it clear, in his own peculiar way, that the US would not return to the
Paris Accord on climate change and would resist any G20 statement that
committed the US to open and free trade. Indeed, Trump is considering
imposing tariffs on EU steel products.
Globalisation, as the leaders of capitalism and big business have
come to expect and enjoy, is now under threat from nationalism and
protectionism. Then there is the growing political crisis hot spots of
North Korea and the Middle East on which the G20 leaders have no clear
policy or solution. But maybe there is one bright spot for capitalism – a seeming
improvement in the world economy at last, after six to seven years of
depressed economic growth, investment and incomes since the end of the
Great Recession in 2009.
As the IMF put it in its last update on the global economy: “The
good news is that the world economy is gaining momentum as a cyclical
recovery holds out the promise of more jobs, higher incomes, and greater
prosperity going forward.” However, there were caveats: “the
world economy may be gaining momentum, but we cannot be sure that we are
out of the woods….there are clear downside risks: political
uncertainty, including in Europe; the sword of protectionism hanging
over global trade; and tighter global financial conditions that could
trigger disruptive capital outflows from emerging and developing
Nevertheless, there appears to be economic recovery in most parts of
Europe. Average real GDP growth in the Eurozone is now heading for 1.5%
a year, with Scandinavia and Eastern Europe growing even faster. The
US economy is showing signs of wear and tear, but still manages about 2%
a year. Japan trundles along at about 1.5% a year. China too, after the mainstream doommongers predicted collapse, continues
to expand at about 6.5-7% a year. Even the some of the major so-called
emerging economies like Brazil and Russia appear to be coming out of
the slumps they have suffered in the last 18 months.
Global profits seemed to have picked up in recent months after
heading into negative territory. This recovery is driven by improvement
mainly in China and Japan.
This has made some mainstream economists (JP Morgan) more confident
that the Long Depression may be over. Recovery and sustained faster
growth may be coming soon, led by improved business investment.
Only the UK, of the major economies, seems to be heading downwards.
After the decision to leave the European Union (Brexit), companies have
stopped investing and capital flows through the City of London have
dropped off. The latest real GDP data for the first quarter of 2017
showed that the UK economy grew only 0.2%, the lowest rate of growth in
the whole of Europe, including Greece! Industrial output is falling
outright and business investment is flat.
The average UK family faces the tightest squeeze on real incomes for five years,
as real disposable income per head fell 2% in the first quarter of
2017. Indeed, according to a new report by the Joseph Rowntree
Foundation, a family of four (two working adults and two children)
requires “at least” £40,800 a year to manage and on average, and such a
family in the UK is falling short of that by about £3000.
And all is not entirely rosy in the US too. The latest monthly jobs
data for June showed a further rise in employment, but also a turn up in
the unemployment rate for the first time in years. That suggests
employment has peaked. Wage growth remains subdued at just 2.5% a year
and, after inflation, average incomes are crawling. Above all, profits
in the productive sectors of the US economy are falling.
The return on equity in the US stock market is at an all-time low –
that’s a sign that stock prices are way out of line with earnings
(profits) being made by US companies.
And US bond yield curve is flattening (ie gap between the long-term
yield and the short-term interest rate in credit markets). That is
usually a sign of an economy slowing. When the curve inverts (the long
-term yield is lower than the short-term rate), then that is a sign of
an upcoming slump.
The bond yield curve is flattening because the US Federal Reserve
seems committed to increasing its policy rate that sets the floor for
all interest rates for borrowing in the US and often overseas. This
means the cost of borrowing to spend in the shops or to invest in
business expansion will rise. In the minutes of its last meeting, the
Fed members are ready to hike rates further even though inflation is not
rising, on the contrary, and wages are hardly rising.
As one American hedge fund manager put it: “I don’t see anything
different from what the Fed has been saying already. The economy
continues to be okay. It’s not overheating or under-heating. The
implicit message is that we are on track to raise interest rates and to
shrink the balance sheet, not because the economy is overheating but we
want to normalise monetary policy.” But if the Fed continues with this policy, it could well increase downward pressure on corporate profits and investment. There are already signs that borrowing costs have risen in Asian economies.
Moreover, the underlying reasons for doubting the optimism of the G20
leaders and hedge fund bosses on the world economy are that none of the
key causes of low productivity growth and investment have been dealt
with. In its latest report on the US economy, the IMF cut its growth
forecasts to 2.1 percent in 2017 and 2018, dropping its assumption that
the Trump administration’s tax cut and fiscal spending plans would boost
growth. Far from accelerating, the US economy continues its sluggish
crawl – at best. While the Trump administration built-in growth
projections of 3 per cent by 2021, the IMF sees US growth subsiding to
an underlying potential rate of 1.8 per cent by 2020.
Productivity growth in all the major economies continues at historic lows.
While real GDP per head is still well below levels before the Great
Recession, inequality of incomes and wealth within the major economies
remains at record highs – indeed still rising.
And world trade volumes remain some 25% below peaks before the global financial crash.
The world economy still seems to be zombie-like, even if there is some optimism that the walking dead may be coming to life.
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