A sure sign that an economic trend has been established is when the OECD finally jumps on the trend bandwagon and recently the OECD has joined the group of recently converted economic pessimists. Gone are the days when big borrowing, big spending governments would save the day – the theme of the day now is hang onto your hats because we might be in for a bumpy ride.
Even the Reserve Bank of Australia sounds cautious recently which says something since they appear to specialise in being so far behind the curve, that they almost appear to be clairvoyant.
But let’s get back to the OECD who recently provided an update on the state of the global economy in which they observed;
Economic recovery appears to have come close to a halt in the major industrialised economies, with falling household and business confidence affecting both world trade and employment, according to new analysis from the OECD. Growth remains strong in most emerging economies, albeit at a more moderate pace.
“Growth is turning out to be much slower than we thought three months ago, and the risk of hitting patches of negative growth going forward has gone up,” OECD Chief Economist Pier Carlo Padoan said during a presentation of the OECD’s latest Interim Economic Assessment.
So three months ago the OECD had a different view hey? Well let’s go back three or four months and see what I was saying on this humble blog.
I don’t have an army of economists or researchers at my disposal so to paraphrase Dr. Emmett Brown Doc from Back to the Future; please excuse the crudity of my analysis.
In April when the OECD were still somewhat upbeat I wrote:
“Over the last few years I have stressed that the actions of the G20 nations in response to the global financial crisis amounted to little more than going on a spending spree to try and prop up demand. This of course works for a while, but it is a dangerous strategy because it relies on consumers and businesses picking up the slack once government economic stimulus spending stops.
We are now at the point where most, if not all, of the G20 nations are starting to either ease back on government spending or make fairly drastic budget cuts in order to get debt levels under control. The big problem is that it doesn’t look like the average consumer is overly keen to shop until they drop and companies are finding business conditions are still challenging.”
Again in July I was once again raising a red flag when I stated:
“…….Purchasing Manufacturing Indexes (PMI’s) in China, India and South Korea are currently trending downwards – this may be just a short term development but it’s hard to see what would reverse this trend at the moment.
Extra demand from the U.S or Europe seems unlikely and demand from Japan is also likely to be subdued for quite some time. Perhaps consumers in these nations will suddenly go on a spending spree but I would put that in the unlikely category at this stage.”
I don’t blame the OECD for being reluctant to state the obvious because they appeared pretty keen with the idea that throwing a lot of money around (much of it borrowed) was a good way to get over a crisis which was caused largely because there was too much debt around.
Interesting logic isn’t it? . It’s a bit like a plan to shed some weight by not exercising and eating only junk food.
Back in Australia the tricks to balance the budget (or try to balance the budget) are already being prepared and it appears the Gillard Government is getting ready to raid the Future Fund to help make the books look better.
The sad reality is that the Government is going to take money out of a fund set aside to fund pensions because it wasted millions of dollars on for example pink batts, outdoor learning areas and building projects that were wasteful.
But wait, there’s more! Just as the global economic clouds are gathering the Government is going to hold an enquiry into the media and push through a carbon tax that is unpopular and unnecessary.
A media enquiry, that’s a good way to achieve nothing. But why not go for another Ruddesque 2020 Summit I ask? At least when Rudd did something that was absolutely pointless he did it with some style.
It’s no wonder that the number of economic pessimists is growing. Over the last few months there has almost been a stampede of economists, finance journalists and others as they rush from the “it’s all okay we are with China” team to the “it isn’t looking so good” camp.
There are also not too many (any?) economists talking about interest rate rises as being a sure thing this year anymore either.
My view as people probably know by now, is that rates were raised too far by the RBA and should have already been cut by now. But never fear, the RBA will keep battling inflation even as small businesses close, workers are laid off and manufacturing sector ends up so small that we will have to import all mining equipment, not just most of it.
But in the midst of this gloom my contrarian spirit is beginning to stir. The global economy is certainly not doing well, but maybe there is a little too much pessimism around now?
The Baltic Dry Index (BDI) for example is the highest it has been all year, oil prices look like they might creep up again and maybe even gold could be losing it’s shine.
I am not quite ready to be running against the pessimistic stampede yet, but I will have my running shoes close by and be looking for signs that the time has arrived to be more optimistic about the outlook for the global economy.
Greg Atkinson is the editor of Shareswatch Australia and the Managing Director of Ohori Capital He is originally from Australia but currently resides in Japan. He can be followed on twitter via @GregAtkinson_jp