Comment du Jour

Global Growth Lackluster; Governments Oft Clueless

“Economic activity in the world economy remains lackluster, with little prospect for a turnaround in 2016,” cites the gloomy prognosis by the World Economic Situation and Prospects Update for 2016.  The UN survey cautions that weak global growth “continues to linger,”  posing a serious challenge for governments and economies.

World gross domestic product is only expected to grow by 2.4 percent in 2016.  The tepid expansion reflects what the survey calls  “low investment, low commodity prices and financial market turbulence.”  It adds “bleak prospects have been compounded by severe weather related shocks, political challenge and large capital outflows in many developing regions.”

Hardly a sunny forecast, as the world economy is facing severe drought-related agricultural losses from the cyclical El-Nino weather effect as well as major setbacks in commodity prices.

But besides bad weather we see that in the developed economies “the momentum of growth has slowed significantly.”  In the United States GDP growth is expected to reach only 2.2 percent in 2016  but remains fragile.  The survey states, “The revival of business investment in the United States lost momentum last year culminating in a sharp drop in the final quarter of 2015.”

USA job creation numbers remain lackluster too.

Japan still experiences tepid economic conditions with GDP growth a mere 0.5 percent. Despite its lackluster performance last year, Japan’s economy grew impressively at 1.7 percent in the first quarter of this year.  The report warns that should the government increase a consumption tax from 8 to 10 percent,  “Japan could fall back again into recession in 2017.

European Union economies are expected to expand by 1.9 percent this year and 2 percent next year, but here again growth varies widely among the 28 member states with Germany’s economy still the EU locomotive at 1.5 percent growth.

East Asia again gets among the best marks with regional growth pegged at 5.5 percent this year. Mainland China’s economic deceleration has taken its toll;  Beijing’s once dizzying growth rates have tempered to 7.3 in 2014 and 6.4 percent expected this year.   Not only has China’s economy precipitously slowed but the knock on effect has  been felt especially among commodity exporters in Africa and Latin America.

Yet, Mainland China’s trade with the U.S. continues to surge with a $366 billion trade deficit favoring Beijing last year alone!

 Russia continues to stagnate due to the fall in petroleum prices as well as Western economic sanctions slapped on  Moscow over Ukraine.  Russia’s growth in 2015 recorded a  minus 3.7 while this year a minus 1.9 is expected.  Ukraine’s economy is equally projected to suffer this year.

The enthusiasm over what many economists call the BRICS (Brazil, Russia, India, China, South Africa) seems to have dampened as the once vaunted group has weathered notable economic setbacks which have knocked down many of the BRICS.

The report stresses that persistent weakness in demand in developed economies remains a drag on global growth.  Equally the massive debt levels accumulated by government spending in the USA and much of Europe  has served as an deadweight to hinder a robust economic recovery.

The U.S. must revive its economy through entrepreneurism, not more government spending.