End of the world recession

The US economy recovers

In the final quarter of 2009 constant dollar GDP rose 5.7% (AR), more-than double the 3Q growth rate and the quickest increase since 3Q 2003. A sharp slowing the rate of inventory de-cumulation accounted for 3.4% of that growth. Foreign trade deficit also contributed one half of a percentage point to growth last quarter as exports increased at a 18.1% (AR) (-1.7% y/y). This followed a 17.8% 3Q gain as the lower value of the dollar continued to improve the competitiveness of U.S. products. Real imports, rose at a lesser 10.5% rate and remained down (-7.7%m y/y) versus last year. Growth in domestic final demand moderated to 1.7% after a 2.3% 3Q rise but this was the first back-to-back quarterly increase since 2007. A 13.3% increase (-8.7% y/y) in business investment in equipment & software led the gain after its 1.5% 3Q rise. Investment in business construction, offset much of this increase with a 15.4% decline (-24.7% y/y). Residential investment also was strong and posted its second quarterly increase (-12.1% y/y). Personal consumption growth lagged with a 2.0% gain (1.1% y/y) that was dragged down by a sharp quarterly decline in spending on new autos with end of the "cash-for-clunkers" sales campaign.

The US has then finally escaped the recession which gripped it since the beginning of 2008, while the inventory contribution is very large it is not over. Inventories continued to decline through the last quarter, only at a slower rate, it is the change in inventories which determines their contribution to GDP not their absolute level, so they will continue to boost US output through the course of 2009.

So whatever happened to the Great Depression?

Over the summer of 2009 various Marxist economists asserted that the world had entered a Great Depression. Andrew Kliman speculated that the US might “never recover” from this crisis. Richard Brenner from the L5I said that the financial rescue measures that saved the banks from collapse had “exacerbated” the crisis, that there would be no recovery before 2011 at the earliest and even then it would be feeble. Chris Harman said that it just as after the Great Depression of 1929 it would take ten years for the world to recover. These catastrophist Marxists confused a financial crisis of enormous proportions with the collapse of capitalism itself. Their misunderstanding of the period and the nature of crisis within it was a consequence of their assertion that there is a strategic “over-accumulation” of capital, which had existed pretty well unchanged since the early 1970s. Globalisation, the expansion of capitalism into China and the former centrally planned non-capitalist economies of the USSR and Central and Eastern Europe meant nothing to them. The period between 2003-2007 which the Economist magazine called the strongest boom in capitalism's history, was for them, a period of stagnation and decline, with falling profit rates, growth and investment. 

Lehman's and the slump

Over the winter of 2008/9 bank lending froze. The fall of Lehman Brothers the fifth biggest investment bank in the USA, meant that even bank deposits were not safe. Trade which depends on bank financing halted. And so did industrial output. Rates of decline briefly traced those of the Great Depression after the Wall Street Crash of 1929.

http://www.cpb.nl/eng/research/sector2/data/trademonitor.html

What now?

So through the course of 2010 it is reasonable to expect that the world economy, driven in particular by a Chinese Asian lead boom, ongoing financial stimulus measures and inventory restocking will continue to recuperate from the crisis and at a fairly rapid rate.

What is still unknown is what happens then, as the government reflationary measures are withdrawn at the end of this year. There was a sharp recovery following the recessions of 1974 and 1981, immediately followed by further crisis. It is possible that there will be a further slow down once the reflation is removed, particularly as the governments of the various economies attempt to recoup a proportion of their bail out money through tax hikes and spending cuts.

On the other hand, the strength of China’s boom, a fall in unemployment in the major economies, ongoing high profit rates, a recovery in investment and the fact that critically the world remains open for trade, has not seen significant steps to re-divide the world economy between the rival blocs, the USA, Europe and China lead Asia, means it is possible that a further boom could follow. 

Sat 30, January 2010 @ 10:07