Global Economy – Still Unravelling! (#17A-Short)

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For two decades the West and the East were in a mutually satisfying dance in an ever cooperative economic embrace. The West was providing the unabated consumption and capital and the East was providing the cheap goods and services to support that consumption. The resource rich countries were providing the raw materials and were prospering hugely in the bargain. This co-dependent economic relationship was working so well, and was so beneficial for all parties that it created an unprecedented global economic boom that lasted for decades. No one could have predicted the current breakup and the great unravelling that is taking place today. 

The consequences of the 2008 crash are now making all countries retract, as each region and country looks to heal itself from the significant economic/political damage done by the crash. 

In our earlier reports on this topic, we had said that two decades of unbridled consumption in the developed Western economies had been responsible, in the main, for the strong growth rates of the emerging markets. They supplied and fed the West’s consumption, which in turn had created jobs and wealth in those countries, and fuelled their voracious appetite for commodities. Once that unmitigated consumption in the West came to an abrupt and inevitable end, it had a predictable negative economic impact on the growth of the emerging markets. Five years after the 2008 financial crash, emerging markets including China and India are experiencing declining demand in the West and are therefore dramatically slowing, and in turn are steadily scaling back their demand for commodities and energy, thus locking East and West in a downward spiral of declining GDP growth.

Annual global GDP numbers (IMF): 2010 – 5.3%; 2011 – 3.9%; 2012 – 3.5%; 2013 – 3.3%. (2013 estimate may be a bit optimistic) The global economy is still, predictably, unraveling. 

From the rebound in 2009-2010, (we had called it the #DeadCatBounce) the major economies have been slowing steadily, with annual GDP declines in spite of the best efforts of their respective governments and Central Banks to boost growth. That means that quantitative easing Worldwide has done little to stimulate economic growth till now, and as China and India feel the full impact of lessened demand from the West, they themselves are going to impact the West more negatively. In Canada we have felt the brunt of the downturn in demand for commodities.