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Charting Global Growth

Since the dawn of civilization, the edifice has always been to progress, to advance and to grow. This is scale independent. Micro organisms are genetically created to grow. Ants are a noble example in which colonies have one common mission which is to expand in numbers and to conquer ever greater areas of land. Humans are progressive beings; we develop and innovate our way through obsolesce, partly facilitated by the natural process of creative destruction. Economies' main purpose is to grow through competition and cooperation; thereby striving in their provisions of exquisite standard of living for their people. Many already know through my tautologous posts that the markets are broken, the virtuous cycle has ceased to function and what not. But the real juggernaut, ladies and gents, is zero real growth. The nominal booms in many developed first world economies post 2008 were results of a prodigious splurge in government expenditures and central bank liquidity injections. There isn't much of a doubt that global consumers have been deleveraging in areas they previously suffered much under. Central banks have stepped in to provide fuel to inflate asset prices (they read stock prices and home prices), believing that rising prices can boost consumer confidence to get them back into their old ways of a shopping extravagance. That has of course worked wonderfully if debt was perpetual and fungible. The a world of unicorns and honey sucking bears, this would be possible; but in a world where reality bites hard, it doesn't... it infact fails miserably.

I have spend quite a bit of time putting together various sets of data to arrive at the above chart which plots global growth, broken down into its major constituents. Alot can be derived from that but we don't the time and energy to carry out such comprehensive analyses. The upper pane plots the quarterly real growths of the top 10 economies (per 2011 PPP measure). The lower pane plots intra-Eurozone growth and juxtaposes EU and Eurozone growths (dotted red vs. dotted yellow lines). Succinctly explained, the only thing keeping the world hovering above the sub-zero degree saline lake is residual growth momentum of developing economies (read BRICS and other smaller eastern economies). These economies are more autarkic and have some room for internal growth (shift in investment/savings to consumption). As highly populated as these nations might seem, they make up less than 40% of global GDP. The largest economies (US, Japan, Germany, France, UK, Italy and Spain) are barely threading water or even under water, experience negative growth. These are the drivers for production and global trade. Absent Germany and Japan (with impunity), all of these nations are net importers and hence are the buyers of global exports. There have been a bevy of new reports showing one export oriented countries registering record trade deficits partly because of the Euro's relative weakness against their currencies and mostly due to weak global demand. China recorded its largest trade deficit since 1989 while Australia (a major exporter to China and hence hinged to China's growth trajectory) recorded a trade gap in 11 months. Although Brazil has seen the relative value of its real fall in the past 6 months, it too recorded the first trade deficit in a year; while the story in Japan isn't improving (Yen weakness has temporarily halted). The 3% growth in America last year should be taken with a pinch of salt due to reasons so seasonally adjusted it makes little sense to ponder over. Pay attention to its Q4 '11 growth because such a large jump isn't reflective in macro economic indicators.

On both panes, there are think black dotted lines which are business cycles based on the geometrical weight average the values seen on the charts. On both panes, this measure has dipped from a high roughly established in Q1 '11 to zero. Note that whenever this happened in the past, major economies went with it. There were lags but this is understood to be a statistical trait of averaging. When Q1 data are released, I will be sure to update this data series and see what results we get. Note that I cannot obtain data for Greece after Q4 '10 and for China. My apologies on these omissions.

We now focus on the lower pane where intra-Eurozone growth is plotted. First, it is noted that there isn't much difference between the growth numbers for EU (27) and Eurozone (17) countries. This is perhaps a statistical flaw because a good weight of EU (27) numbers also included those of the Euro users. If time allows, I will try aggregate numbers for the 10 non-Euro countries for a better juxtaposition. Secondly, note how tightly tied the numbers were post 2012? This is probably a good reflection of contagion from a macro-economical perspective. As fervently as Euro stalwarts espouse that Germany, the strongest core European core nation remains on stable ground, Germany never grew in the whole of 2011 despite the ongoing German cannibalism. The business cycle for the European countries has dipped into recession much further than the broader measure (upper pane) has.

Some of you will wonder why I'm making such a fuss about global growth; after all, we have been through worse. Er, that is incorrect. 4 years back, the world was circa $30trn less centrally burdened with debt. Money is fungible. Debt isn't. This very attribute of debt poses a huge threat to sovereigns. There are three knows ways to 'repay' debt: 1) Default/restructure/PSI; 2) through hyperinflation; and 3) good old growth. Since the likely hood of growth is more far fetched than before (ignoring problems that have been smartly sequestered by our central planners), the only solution is defaulting or inflating. Defaulting isn't popular because of political backlash and the heightened possibility (read certainty) of financial Armageddon. Hyperinflation is the only tried and tested way which is incidentally favorable by the technocratic ****s that rule the world. So make no mistake about it, inflation will return with a vengeance and growth isn't a necessary prerequisite (why does oil trade at $100 when both those charts look as such?).