Tags: united states | global growth | china | economy

US Is Far From Becoming the World's Growth Engine

Friday, 02 Jan 2015 01:20 PM Current | Bio | Archive

The Chinese National Bureau of Statistics has declared “China’s manufacturing sector lacks growth momentum.”

With that said as a new year begins, a legitimate question for all long-term investors is: Where is global growth going to come from now that the main engine of global growth has practically come to a standstill and seems definitively on its way to slow even further?

The EU, in particular the eurozone, is stagnant and only expanded on a yearly basis by 0.8 percent during the third quarter of 2014.

In Japan, GDP contracted on a yearly basis by 1.9 percent during the third quarter.

Many important emerging economies face further slowing growth and even contraction, especially those whose growth depends on oil and other related exports. For example, Brazil, which is the seventh largest economy in the world and the largest in Latin America, contracted on a yearly basis by 0.2 percent in the third quarter.

This leaves us with the U.S., which is still the “real” biggest economy in the world, and that expanded on a yearly basis by 2.70 percent in 2014.

That is still not a stellar performance, as between 1948 and 2014 U.S. GDP expanded on average by 3.24 percent, and GDP growth reached an all-time high of 13.40 percent in Q4 of 1950 and a record low of negative -4.10 percent in Q2 of 2009.

But don’t think the U.S. is on its way to becoming the growth engine of the world.

Please take into account that U.S. exports, in accordance to the latest data available of the World Bank only represent 12 percent of its GDP while its imports only represent 17 percent of its GDP.

It is really worrisome that the most important economies in the world are definitively on completely divergent paths and that situation will remain like that for quite some time to come.

You don’t have to be a pessimist to see that this will lead to disturbing shocks and frictions caused by, among a lot of other things, divergent monetary policies of the different central banks these economic blocks.

Meanwhile, the rising dollar will cause havoc among all entities that have borrowed in, or leveraged against, the U.S. dollar during the Fed’s quantitative easing (QE) years with the abundance of cheap money. The outlook for all with obligations in dollars doesn’t look good for quite some time to come.

As a U.S. dollar-based, long-term investor, you should never overlook “currency risk” when your investment is based outside the dollar especially now the dollar is definitively bound for rising further for quite some time to come.

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united states, global growth, china, economy
Friday, 02 Jan 2015 01:20 PM
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