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Tags: David Rosenberg | economy | growth | leadership

Gluskin Sheff's Rosenberg: There Is No Global Economic Leadership in Sight

By    |   Tuesday, 09 September 2014 02:38 PM

Real recovery of the "escape velocity" type is still eluding the global economy because there is no true economic leadership among the nations, according to David Rosenberg, chief economist at Gluskin Sheff + Associates.

From his viewpoint, debt levels are still unsustainably high while savings are too low.

In an analysis for Canada's National Post, Rosenberg ticked off the state of the major players:

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  • "The eurozone is back perilously close to recession, except this time it is Germany and not the Club Med countries playing the role of caboose."
  • "The once-hot U.K. economy seems to have peaked: manufacturing activity is rolling over and the housing market is losing its froth."
  • "Japan is suffering the aftershocks of an April sales tax hike, with household spending contracting… and the trade deficit undergoing an alarming deterioration even after the epic depreciation of the yen."
  • "China is deliberately slowing down, property values are deflating and bad loans are piling up in the banking sector."
And what about the United States, nominal leader of the free world and its monetary system?

He noted consumer spending recently contracted again, and Wall Street economists have lowered their third-quarter GDP estimates for the United States from 3 percent to hardly more than 2 percent.

"The fact that on a global basis the U.S. economy has emerged as the smartest kid in summer school is of little consolation," Rosenberg wrote.

"The problem is that there remains no global economic leadership in this cycle. Plenty of liquidity and central bank stimulus, yes, but no escape velocity when it comes to global economic growth."

Because productivity appears to be declining as well, Rosenberg sees two economic silver linings: in order to boost productivity, companies now have no choice but to embark on capital spending at last, and second, companies now will have to hire workers.

However, he noted total world debt outstanding now totals about $92 trillion, or 125 percent of global GDP, about the same level it was in late 2007 when the financial crisis was just getting started. In the United States, he said households are still engaged in deleveraging their debt.

"There is nothing wrong with focusing on balance-sheet improvement and saving for the future. But it comes at the cost of current consumption."

Another barrier to U.S. economic recovery is demographics and inadequate baby boomer retirement savings, in Rosenberg's view. He said extremely cautious consumer behavior is the biggest drag of all on GDP growth.

In a working paper for the National Bureau of Economic Research, Northwestern University economist Robert Gordon concluded growth is missing precisely because productivity gains have disappeared.

"The American economy has evolved from a fast-moving rabbit to a slow-moving turtle, and the community of academic economists, business economic forecasters and policymakers inside the government have been slow to recognize this profound transformation," Gordon wrote.

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Real recovery of the "escape velocity" type is still eluding the global economy because there is no true economic leadership among the nations, according to David Rosenberg, chief economist at Gluskin Sheff + Associates.
David Rosenberg, economy, growth, leadership
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2014-38-09
Tuesday, 09 September 2014 02:38 PM
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