Seizing Up

10/08/2012 at 1:30 pm

It may be a quiet summer – for the moment – but what a difference a few days makes. Last week it seemed that (developed) world growth had flattened; this week it was confirmed. Only yesterday the Bank of England Inflation Report forecast 2012 GDP growth of around zero. This morning, French industrial production for June came in at exactly 0.0%, bringing the year-over-year number down to -2.3%. And China reported export growth over the year of only 1%, down from 11% the previous month.

At the same time, reported Q2 earnings for the S&P 500 index – which had been growing at a reasonable rate in prior quarters – are almost exactly unchanged on a year ago. Flat economy, flat earnings: not much to be positive about there.

Still, some perspective is needed before we get too bearish about these recent numbers. In the UK for instance, where year on year GDP growth fell to -6.1% in real terms at the nadir of the recession in 2009, flat growth this year doesn’t look too bad by comparison. In France too, industrial production was falling by over 19% at the worst point in ’09, and China lost 26% of her exports at the same time.

In other words, the disappointment and stagnation we’re seeing today is an order of magnitude less concerning than the painful contraction witnessed in the aftermath of the credit crunch.

That’s not to dismiss it entirely of course. A growth hiatus is a bleak substitute for growth. But it’s better than collapse.


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