Wishful thinking aside, the global economy appears more fragile than ever. After promising signs earlier this year of sustained (if not accelerating) U.S. growth, new employment figures continue to disappoint with a mere 80,000 new jobs for June (see “The Jobs Week That Wasn’t” for longer term implications.) The IMF revised growth estimates down to 2.0% from 2.1% for the year while other estimates dip to 1.8%. By any measure there’s little bounce and less resiliency in this post-recession period than most others.
In Europe the debt crisis has only been delayed, not solved. After gaining over 15 percent since the beginning of the year the DAX index has reentered a downward drift, loosing half its gains over the past few months. Commodities are trading at two week lows even after news of China stimulus measures hit global markets.
China unexpectedly reduced bank lending rates (along with European and British central banks) to spur growth. Freeing up money for what type of development remains uncertain. Endless infrastructure projects have proved no panacea. Savings rates also dropped making households worse off longer term. They continue to earn less in interest than inflation takes away each year. Sound familiar?
The goal may have been to induce more spending, but a consumer-driven economy doesn’t suddenly appear overnight because bank deposits earn less interest. Social investments have been so minor, even during the recent boom years, that a household’s desire to save will remain strong. Though wages have been rising faster than inflation mid-career earners are squeezed between the high cost of medical care for their aging parents and high education expenses for their children. Don’t expect any major policy changes ahead of leadership transition in late 2012 despite Premier Wen’s entreaties to take more forceful action.
India has suffered mostly from its own stalled reforms rather than shrinking export markets. Domestic retail, agriculture and continued state dominance of entire industries coupled with runaway corruption have seriously injured growth. No concerted political effort in New Delhi has appeared to counter internal inertia for maintaining the status quo.
Endless promises of emerging markets picking up the slack from western industrialized countries have clearly failed to deliver.
The recent litany of bad economic news only confirms earlier signs of a more serious global slowdown. Unfortunately politicians, at least in the U.S., have eyes only for November elections. As it stands now any major stimulus will come after inauguration day, January 2013. That’s a long wait.
Holding the economy hostage for potential political gain may backfire well before the hundreds of millions of campaign advertising dollars are finally spent. Imagine what good that could do the U.S. were it used to fund start-ups instead.
Welcome to the dog days of summer . . .