Lowering the speed limit for world economic growth

stop slow down sign

Photo: photologue_np/flickr.

It seems everywhere you look these days economies are gearing down to much slower speeds. Indeed, some economies are already at a standstill (or even moving in reverse) and it’s likely more will soon follow.

Whether it’s North America and Europe or even China and India, the story is much the same — the world’s largest economies are running out of gas. Despite the best efforts of central banks and finance ministries, even unprecedented fiscal and monetary stimulus aren’t enough to keep the global economic recovery from stalling.

In China, the days of heady double-digit growth rates look to be over. The latest GDP projections see growth sinking into the 8 percent range, a pace that itself may be unsustainable. Even China’s seemingly indefatigable manufacturing sector, which is responsible for more factory output than that of any other country, is beginning to look tired. The last time that happened, Beijing came to the rescue with a 4 trillion yuan stimulus package. But that was during the global recession in 2008. This time around that kind of massive stimulus may help to fill order books, but it would also surely start a bonfire under inflation at the same time.

The economic outlook is similar in India. Growth there has decelerated to 5 percent, the slowest pace in nearly a decade. And even that may not be sustainable given that inflation is now chugging along at more than 7 percent.

Even with slower growth, China and India remain bright spots for the global economy. Hardly a day seems to pass without more bad news coming out of the euro zone. In Spain, money is pouring out of the banking system, with more than $80 billion fleeing for safer havens in the last month alone. And with good reason. Investors need only look to Greece for evidence of what a punishing recession will do to a country’s banks. Greece is about to leave the European Monetary Union and Spain won’t be far behind. An exodus of the euro zone’s weaker members bodes poorly for the stronger economies of northern Europe. Without the drag of the struggling PIIGS (Portugal, Italy, Ireland, Greece, Spain) to hold down its value, a soaring euro will batter German exports, one of the few remaining stalwarts of an otherwise moribund EU economy.

The outlook for North America is also sobering. The most recent US employment report shows the economy added a paltry 69,000 jobs, hardly the kind of job creation needed to keep a struggling economic recovery on the rails. In both the US and Canada, GDP growth has already dipped below 2 percent.

What makes such modest growth numbers even more troubling is the amount of stimulus that’s already been used to create today’s tenuous recovery. Central banks are keeping interest rates at or near zero, while huge fiscal deficits are already commonplace. In that context, it’s far from obvious what economic levers governments have left to pull to fight the next round of recessions that are threatening the global economy.

— Jeff Rubin, Transition Voice

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  1. Auntiegrav says

    “In that context, it’s far from obvious what economic levers governments have left to pull to fight the next round of recessions that are threatening the global economy.”

    When something fails, it is obvious that you should not do that. In other words, the whole concept of growth is OBVIOUSLY wrong, as it always fails (boom and bust cycles). The purpose of social organization (government or otherwise) is to MODERATE human behaviors for our best interests. Our best interest is not to consume the resources we will need in the future.
    Trying to “recover” an economic model that is based on extraction of resources is the folly. Every effort of government should be to motivate people to CREATE resources, not consume them. This means putting people back on the land, removing laws that restrict personal activities (like raw milk, home-made items, butcher shops and home processing of animals, paperwork for employing people) and putting laws in place that increase the cost of consumerism (sales taxes to replace ALL other taxes).
    Pretty obvious: just not popular for a world that has grown accustomed to raping its grandchildren for profit. Current policies are based on maintaining authority, not benefiting the future or the people. Hurrah for the Rich!! They won the Class War.
    Unfortunately, they’ve probably killed over half the planet in the process. The edifices to their egos just haven’t had the grace to fall over.

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