Will we get a recession?
US GDP growth has now been bullish for a record 10 years. So tired minds inevitably start chattering about the end of the cycle – and they are right – the odds are that we are closer to the end than the start. But how much closer and what will close the gap is a different point. Here is my current summary:
– the US economy is consumer led and largely self sustaining. Employement is at a record high. Interest rates are eyeopeningy low and the stock market, though stuck in a flat band for the last year, is around record highs. There are domestic problems. Manufacture, Power and Taxation are examples. The current administration’s actions tend to be reactionary, luddite and short term to a fault. So environmental policy is constraining new car manufacture investment rather than urging disruptive innovation. More coal mines and effluent filled rivers will ultimately prove economically self defeating. Tax give aways work strategically only if the benefits are focussed on R&D, infrastructure and digital innovation.
The real elephant in the room is the White House’s inability to define a robust long term domestic and foreign policy that is joined up and mutually supportive. The immediate culprit has been the blinkered rush into poorly choreographed trade wars with our continental neighbours, with Europe, Iran, China and really anyone who dares to challenge US thought.
And here’s the rub, for it is in this failure to parse the future that there lies the sheet anchor to ongoing economic success here and in the rest of the world. It is this administration’s inability to create harmony that marks it as a political pariah – and which is suggesting already that indeed we may suffer in the coming years.
Growth is continuing in South Asia and Australasia – whilst elsewhere, including the US, it has slowed to eyewatering depths. Europe, Canada and Latin America, Japan and Russia are all vulnerable to recession – in all cases the official estimates are falling. Behind the overall statistics lies real social suffering. It is difficult to think who is minding the shop at the moment and, ignored, there will be extremism, intemperate polarised leadership, dictators, and mob rule – and then one of the nations will break. Britain’s exit from the EU could start the process. It may be an overindebted European country – a Greece or Italy. It could be a breakaway cabal – such as the East European states. It will almost certainly involve large movements of stateless and homeless peoples.
At that moment the US extreme reliance on its consumer at home, its misguided conviction that it is immune from the events in the rest of the world and its casual incompetence in playing the role of superpower, will look a grievous mistake – a lost opportunity. And it is possible that we will be set on a path to extended economic stagnation.
The attached images are from Geopolitical Futures – its headline “A looming Global Recession” – and it illustrates how only East Asia and Australia are showing any strength, it points up the downward revision of expectations, and it does this at a time when the whole opportunity is centred on new globalism ratther than petty nationalism.
We face challenges that are inherently global as never before – climate change, education, health care and poverty are issues such that every nation has something to contribute to meet them. The failure of the 2020’s, if failure it be, will be our inability to front up to this challenge, find the leaders and take the action to reset the world’s path to a prosperous and hopeful future when there was still time to do so.
Every day suggests the silent but threatening gathering of economic black swans is growing. The US remains robust but it is on borrowed time. Look out for the start of the first card to fall and then expect a rout.
Have a good day, James