Tags: world economics | gdp | developing countries | china | india

The New 'Normal' of World Economics

The New 'Normal' of World Economics
(Philip Steury/Dreamstime.com)

By Monday, 30 December 2019 12:44 PM Current | Bio | Archive

What we are seeing is that after the end of the “Industrial Age” the world seems to be settling down into a low-growth pattern. While this affects primarily “developed” countries (basically all industrialized countries), developing countries are not far behind.

How does this phenomenon manifest itself? One sees low inflation, low productivity increase, extremely low (often even negative) bank and bond interest rates, and finally low fertility rates (shrinking population).

As I explained in my blog of January 5, 2017, "GDP provides valuable lessons" what we see here is an apparent balance between demand and supply, an economically ideal condition. This is akin to conditions which existed in parts of the Middle Ages in Europe, where for many decades a gold piece could buy a nice coat. A balanced economy is also a great deterrent against economic recessions caused by periodic oversupplies.

We don’t see the balance yet in developing countries such as China and India where (at least for a while) demand still exceeds supply. China for one tries to satisfy part of the internal demand by importing products, such as food stuff and oil, but also airplanes, luxury goods, and some electronics. The apparent current 6% growth rate in Chinese GDP (Gross National Product) is essentially based on domestic industrial growth catching up with internal demand. The Chinese GDP rate will approach 2% once the internal demand and supply are in balance.

One sees the same trend in India; here too, the about 5% GDP is due to internal growth. Here, lack of foreign currency limits import of industrial goods. This stimulates support for local industries, leading to the manufacturing of simple automobiles and cheap and unsophisticated cell phones, for example, in order to meet domestic needs at affordable local prices.

Even the robust South Korea has seen their GDP shrunk to 1.74%.

The reason for the cited steady supply phenomenon in developed countries is the lack of significant new industrial products which otherwise could creategrowth” in the industry, thus disturbing the balance between supply and demand.

I am always reminded that there will be more growth in the future. As an example, Apple is developing evermore new electronic products. This certainly is true. However, where are the hundreds of thousands of new workers? Unfortunately, they live in Asia. The only good thing about Apple is that its profits feed into our economy.

Sure, electric cars may displace fuel driven cars. However, they are produced in the same factories and by the same workers. Similar exchange in technology happens when movie streaming replaces television and movie theaters. In both cases, the net effect on the economy is practically zero.

After a rapid growth in the electronics industry during the past decades, we see a slacking in demand. After all, how many smart phones can a person use? We see stimulants, such as the (really not needed) 5G communications system, in order to give the electronic industry a “shot in the arm.” Yet, I do not see a sustaining future change in our current “balanced economy.”

Let us be thankful for that. I see nothing wrong with the state of the U.S., and for that matter, the world economy, despite all the “doomsday predictors.”

Nevertheless, Wall Street doesn’t like it.

Here is an article from Barron's of 8-6-2019: “Fighting deflation (which does not exist) – we need to monetize debt, the supposedly sacrosanct budget-deficit ratio to 3% of GDP must be ignored. The solution isn’t lower interest rates but higher rates and massive fiscal spending.”

As far as the U.S. economy is concerned, we are reaping now; when between 1995 and 2005, in an act of self-destruction, we transferred hundreds of billion dollars of capital, all of our technical know-how, and the equivalent of 1.2 million skilled jobs to China and other countries. Unfortunately, this process cannot be reversed despite all the useless tariffs.

Wall Street predicts a corporate profit increase of 5% for 2020. I would expect only 3% unless companies put less goods in their boxes (see my blog of May 3, 2019 “Less Cereal in the box …”)

As far as recessions are concerned, we should not expect one in the near future since historically all recessions started due to an oversupply of manufactured goods. This has not happened as yet, although one should keep in mind that during the past fifty years (with the exception of the 2008 bank crisis) every recession started following a decrease in automobile sales; something to keep in mind. What I do fear is a major correction in the stock market at the beginning of the year.

In case you wonder, here is my prognosis for the year 2020 and for the USA:

Federal debt increase: 4.3%

Inflation: 2%

Gross National product: 2%*

Productivity increase: 1.7%

S&P stock index increase: 4.3% (in line with debt increase).

* Barron's magazine predicted 1.9%

Dr. Baumann, a former Corporate Vice President and founder of his company, is a well known inventor, economist, and author having published books on scientific, economic, and historical subjects. He is a member of the American Research Society and an Inductee of the Hall of Fame of Automatic Control, besides also being an honorary member of a number of technical societies. For more of his reports, Go Here Now.

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HansBaumann
What we are seeing is that after the end of the “Industrial Age” the world seems to be settling down into a low-growth pattern.
world economics, gdp, developing countries, china, india
882
2019-44-30
Monday, 30 December 2019 12:44 PM
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