World Economy Heading for Another Period of Weakness DR. HOWARD NICHOLAS SENIOR LECTURER IN ECONOMICS, ERASMUS UNIVERSITY OF ROTTERDAM, THE NETHERLANDS.

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Presentation transcript:

World Economy Heading for Another Period of Weakness DR. HOWARD NICHOLAS SENIOR LECTURER IN ECONOMICS, ERASMUS UNIVERSITY OF ROTTERDAM, THE NETHERLANDS 27 th October, 2015 at International Institute of Social Studies

Understanding the Current State of Economy Shift in global economic power from advanced to developing countries, particularly East and South Asian. Business cycles.

GLOBAL SHIFT IN POWER

Regional Shift in World GDP Share,

US becoming increasingly dependent on trade

Shift in Shares of World GDP for China, India and Sri Lanka, China2.3%16.3% India3.0%6.8% Sri Lanka0.12%0.20%

CYCLES IN THE WORLD ECONOMY

A typical cycle

Types of cycles CycleDurationSource K-Wave50-60 yrsMajor innovations Juglar7-11 yrsFixed capital investments

Combining waves

Long cycle dating TroughPeakTroughDurationHegemonic Power Technology BritainCanals BritainRailways, Steam (steam engine) BritainSteel, Combustion engine, Electricity, Chemicals, Telephone United StatesElectronics, Plastics, Aerospace, Nuclear energy China/E.AsiaComputers, Biotechnology, Robotics

Falling US growth in the context of the long cycle

Juglar dating – cycle bottoms (oil shock) (my estimate)

Economic growth and inflation slowing between recent short cycles Growth Advanced economies BRICs Inflation Advanced economies BRICs5.34.9

FUTURE PROSPECTS

Short-run (next couple of years) US and Europe will follow E. Asian countries into recession in 2016, but not necessarily a major fall in stock markets. More quantitative easing in US, Europe, Japan and China.(1) Fiscal stimulus in China and advanced countries.

Manufacturing driving world GDP

Shares of world manufacturing; US, EU and E. Asia,

Growth of Chinese industrial production and primary commodity prices,

China may already be in recession

Don’t count on Chinese consumers

Emerging markets falling fast

Japan weakening

Europe recovering?

The German export engine is losing steam

US remaining strong

US earning growth falling

G3 durable goods orders suggesting weakness

Long-run (upswing of the long business cycle) Continuing shift of wealth and power to the developing countries. Many more developing countries will shift towards manufacturing production. The successful ones will attract manufacturing production seeking to relocate from China and other high-cost East Asian producers. Some recovery in primary commodity prices. Misguided monetary stimulus policies of the advanced countries could considerably delay the up-turn of the long business cycle.

Printing by central banks

Falling long-term (10 year) interest rates, Germany, Japan, UK and US

Historically low long-term interest rates

…and short term interest rates

What did QE achieve?

QE and inflation in Japan?

QE and inflation in Europe?

…Asset price inflation

Falling global interest rates encouraging surge in global debt

A mega asset price bubble?

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