Compared to past economic recoveries, this one has not yet kicked into high gear. Now, I’m starting to wonder if it will. The U.S. economy is growing, but we need growth overseas if we are going to maintain our growth. Unfortunately, Europe is very sluggish and that is not likely to change. Some of the emerging markets such as China and India are still growing, but China’s efforts to dampen inflation will almost certainly slow its economy too. As you can see from this chart from UBS, we have barely gotten going and global growth is already showing signs of slowing down:
Source: UBS / The Big Picture
In this chart from Thomas Berner, Chief U.S. Economist, at UBS, we can see how sluggish things are around the world. The blue lines show the actual gross domestic product for the world. The steady gold line seems to refer to an average growth rate over time. During a recession, actual GDP falls below the line, but then in a recovery it shoots above the line. In the past, growth rates for the world’s economy frequently hit 5%, 6% or 7% per year for a while after a recession ended. Not this time.
There are many factors to which I could point, but I think uncertainty over the future is the number one retardant. World trade has rebounded from the low point, but the recovery has been hurt by crises such as we have seen in Greece, Spain and Portugal, and also by a bit of protectionism here and there.
Here at home, businesses are not confident in revenue growth so they are not adding new jobs. Consumers are cutting back and reducing debt. And, the huge splurge of government stimulus spending is largely spent. So, what comes next? Eventually, we will muddle through this period and get back on track, but until uncertainty over the future shifts to moderate levels of optimism, we will see sluggish growth.
Hat tip: The Big Picture