Declining Global Growth

In an increasingly globalised economy, we need more global data measurement.

The Economist presents a new attempt to measure global GDP. The sub-bars are showing each region’s contribution to global GDP growth, rather than their internal growth rate:


Globally, there was a big and swift return to strong GDP growth, built on the backs of emerging countries and particularly the BRICs. Since early 2010, rather than getting stronger and stronger, global growth has actually become weaker and weaker.

This is quite a departure from certain narratives popular today that suggest that growth has gotten stronger and stronger since the end of the recession, that we are almost out of the woods, and that we are on the cusp of a new era of spectacular growth.

And in a world of globalised trade, globalised lending, and global supply chains the notion that any nation can really be shielded from the ongoing effects of declining global growth seems extremely over-optimistic.

Yet another reason to be highly cautious of the increasingly popular idea that now is the time to turn bullish on American equities. 

37 thoughts on “Declining Global Growth

  1. There are things out in the world that predict the US is moving into a bull market. The big one is Dow Theory. The Transports just confirmed the DOW’s move up by surpassing its 2011 high. Not sure what Richard Russel is professing but his theory is predicting a rising market.

    Personally I do not think we are headed into a new bull market. I would bet the S$P makes it to 1550 and then turns down to the 1200 area. Now that I think more it seems I am predicting a short bull market like dow theory.

  2. GDP is a horrible number because it does not account for debt.

    Saying that GDP is up over the past years is like having your son or daughter come home and tell you that their income just doubled because they just spent the entire loan they received [for their business expansion] on a new car, on a new kitchen, on new home entertainment system, so on an so forth.

    Real GDP should count debt against real productivity. Only THEN will people realize how much of their money is being stolen/wasted. It would be interesting to know which is more fallacious, corporate or government accounting? I would say that it’s probably about a tie at this point [maximum fraud].

    • What does GDP have to do with the “fake” inflation numbers? Two totally different measurements.

      (As far as I am concerned there is no “real” level of inflation either, there are many, many, many different ways to create and measure price indices. None of them are more “right” than the others).

      • GDP is adjusted for inflation before it is reported. Inflation calculations in the US are just rife with errors one of the biggest is hedonic adjustments.

        • Only RGDP — which this chart is not using (it’s using PPP, which weights for the same basket of commodities without any hedonics) and which I only rarely use (can be useful sometimes, like comparing country to country, especially if two countries, e.g. USA and UK use similar inflation adjustment methodologies) is adjusted for inflation. I think the use of hedonics is mostly weird and distortionary, of course.

  3. Baltic Dry Index. Measures cost of Bulk Container shipping (Coal Iron ore Bauxite etc) demand for commodity transport versus supply of shipping.

    Commodities and Brokers to follow:

    Other shipping stats

    Global Dow. Its a global world now. As Big Business canabalises small business (They have access to cheap equity funding as people buy “Big Dividend Paying” stocks) this chart should be followed.

  4. The US has the biggest companies in the world. Global funds invest in the US

    I remember when the market crashed in 2007, George Bush gave a speech and promised decisive action. Fed funds rate dropped, the market rallied. I got in just as it dropped again. I stayed out, missed the “Green Shoots 60 Minute Bernanke interview rally.

    It is impossible to predict market timing events, but safe to say that using herd mentality and main stream media finance articles as a reference is a sound formula for investing, because at the end of the day the market is mass psychology and the average investors has more market weight now, due to 401k plans and other retirement savings vehicles.

    My mother asked me if she should go from cash to equities as she feels she is getting no return from cash. How many other “conservative” investors feel like they are missing out?

    Due to this, I feel this stampede into equities will continue, as any negative news out of Europe, USA will be met with “we’ll do whatever it takes”. Short vigilantes have been decimated by Central Government Central Bank action.

    But if inflation rears it ugly head, will they raise rates like they did in 2007 even when the data suggested subprime was straining? If they misread then, they will misread again.

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  6. GDP is a misunderstood number. Probably its closest correlation is to how much we consume. It shows how fast we pass around the currency.

    • GDP = C+I+G+NX

      Consumption, Investment, Government spending, and Net Exports.

      In a global case, it is just C+I+G, as NX is zero (unless we start exporting to the moon or Mars).

      It is possible, of course, to just look at C+I.

      • If the Government borrows from overseas does G rise? I always wondered if our Australian Government averted recessions by borrowing OS and spending.

        • Yes.

          Honestly though, Australian government debt is the last thing I would be worried about. It’s tiny! It may get bigger when your various bubbles burst, though due to falling tax revenues. Australian private debt, though. That’s more worrying. There’s going to be quite a big deleveraging period, I figure.

      • It doesn’t really matter what part of GDP you look at. What matters is what you value GDP in and how you determine the transactions to pick up for the calculation. Valuing GDP in USD allows for easy manipulation of GDP. If food prices double, does that increase GDP? What if a lot more currency is put in circulation?

  7. the expansion of the Universe is speeding up, centrifugal forces are releasing energy into new spaces previously kept immobile. diffusion is the key idea

  8. above unit / perpetual motion machines…the australian government is going to announce in the next few years a million+ dollar prize for anyone who can seriously demonstrate something like this to a relevant panel of scientific experts….

    • I am not sure about free energy’s possibility at all. I think a great deal of super high-tech stuff is real, with military applications and so classified. For instance, what is popularly referred to as “flying saucers” probably contains a mix of misidentifications and classified military aircraft . The propulsion systems on those kinds of things is reportedly something exotic (but of course that could be bullshit). Some speculate some kind of antigravitic effect (mercury gyroscope effects, matter-antimatter annihilation drives, strange magnetic effects, etc) but we don’t have any evidence for that. It would be nice if such an effect were possible, but really do we need that kind of power source? After all, we do have boundless solar and nuclear energy otherwise. But if Podkletnov and Felber and other such individuals want to do research into exotic propulsion systems and exotic energy sources, then the best of luck to them.

  9. Why does Iran – whose authorities still hang people in public places to deter other people from breaking the law – constantly appeal to the UN? For public property!

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  15. Great graph on contributors to GDP by bloc. I do disagree with you on the direction of the DOW/S&P. The DJIA has been in a silent uptrend since 2Q09 and has broken key resistance. ( There is no reason to believe that the trend will stop, although l believe that it will pause for a while before breaking through. People are still too scared to enter the market in droves – the 2008 crash is still too fresh in people’s minds. Secondly, I’ve read (but cant source) that the direction of the S&P500 in the first week/month of January suggests the yearly trend. This year, both the S&P500 and DJIA rallied strongly in January, implying that the markets will continue to move higher in 2013.

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