World economy: where are we now?

Posted: January 19, 2012 in Uncategorized

The World Bank published its economic growth forecasts for 2012 and beyond today. The bank has lowered its forecast for 2012 from its estimate back last summer. Now it expects the world economy to grow at just 2.5% this year compared to 2.7% in 2011 and 4.1% in 2010. So the recovery from the Great Recession of 2008-9 is beginning to slow down. The bank’s forecast confirms that the world is not slipping back into a ‘double dip’ recession (see my post, Double dips, deficit and debt, 24 August 2011), but even so economic growth is so slow that capitalism is really in a long depression (see my post, It feels like a depression, 18 September 2011) where unemployment will continue to rise or, at the very best, stay at highs since the world collapsed in 2009.

When you break down the growth forecasts by region, the bank expects that the advanced capitalist economies of the OECD will grow just 1.3% this year, down from a poor 1.4% in 2011 and 2.8% in 2010. There will be a small pick-up to 1.9% in 2013. So by the end of 2013, the advanced capitalist economies will have grown by less than 2% a year in real terms on average since 2009, a rate that cannot restore jobs or losses in living standards from the Great Recession. Indeed, in 2012, the bank predicts that the Eurozone will fall into recession, while Japan will make a mild recovery from the damage caused by the earthquake and tsunami of 2011. Only the US economy will achieve a higher growth rate this year (2.2%) than last year, but even so, its average growth rate of about 2.3% for the four years from 2010-13 is way lower than in previous recoveries from capitalist slumps.

Even more worrying is that growth in the developing capitalist economies, the so-called emerging markets, will drop to just 5.4% this year, down from 7.3% in 2010. That means that unemployment in the poor capitalist economies will rise because these economies need at least 6% real growth a year to absorb the growth in the workforce and the influx into the cities of rural workers. The World Bank also expects world trade growth to slow sharply to 4.7% this year from 12.4% in 2010, forcing exporters to cut their prices by up to 4.5% on average. At the same time, international capital flows will rise only 3.3% , one of the lowest rates on record. All this means is that globalisation of capital has been paralysed. Profitability for capitalist investment abroad will fall, squeezing overall profitability.

Indeed, if we look at corporate profit growth in the major capitalist economies, we can see that it has slowed sharply from the high rates achieved in the immediate recovery from the Great Recession. US corporate profit growth has slowed to 7.5% a year rate, while corporate profits in the UK, Germany and Japan are contracting. This suggests that investment growth will stay weak and employment will hardly recover over the next year or so.

The latest unemployment data for the UK confirm that prospect. Unemployment has reached its highest level in 17 years and it’s going to get worse this year. As well as the Eurozone, the UK economy is contracting again. This may not last more than a couple of quarters, but the downward pressure of fiscal austerity, weak corporate profit growth and poor export growth has pushed the UK economy down (see my post, The best laid plans of mice and George Osborne, 29 November 2011). And the UK economy was weakened by the Great Recession more than most. On his blog, John Ross( shows the UK nominal GDP (measured in dollars) has fallen more than any other European economy up to 2010 except Iceland, as a contraction in real national output was combined with a very sharp fall in the value of sterling.

So the UK’s standing in the capitalist world (as measured in market dollars) dropped the most. Indeed, as I have mentioned before in this blog (The weakest recovery since 1918, 18 October 2011), the UK’s recovery from the slump of 2008-9 has been the weakest in over 100 years. The UK’s NIESR think-tank produces a nice graphic showing the weakness of the UK recovery since 2009.

Having said all this, we must not go too far in the direction of expecting a new slump now. The world economy may be growing very slowly, but it is growing. Indeed, if we look at the indicators of activity in the US, the US economy has marginally improved from last summer. The combined ISM index of manufacturing and services activity (my invention) shows that the US economy is well above recession levels, but not in the boom area.

The highest frequency indicator of the state of the US economy is the ECRI’s weekly leading indicator. This is a useful forecaster of future growth by about six months or so. It shows that the US financial conditoons have slipped from the end of 2010, but they are still well above the depths reached at the end of 2008. So it seems to confirm the World Bank’s forecasts for US economic growth.

Capitalism is weak, but the patient is not having a relapse and going back into intensive care.


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