Economic conditions are not good and the signs are for more trouble. The post-Great Recession recovery has been incredibly weak and it appears that it will soon come to an end. And here I am writing about all the advanced capitalist economies, not just the United States. Perhaps the key indicator: investment and productivity trends.
Here is the International Monetary Fund [IMF] writing in 2015: “Private fixed investment in advanced economies contracted sharply during the global financial crisis, and there has been little recovery since.”
More specifically, the IMF finds that:
The sharp contraction in private investment during the crisis, and the subsequent weak recovery, have primarily been a phenomenon of the advanced economies. For these economies, private investment has declined by an average of 25 percent since the crisis compared with precrisis forecasts, and there has been little recovery. In contrast, private investment in emerging market and developing economies has gradually slowed in recent years, following a boom in the early to mid-2000s.
The investment slump in the advanced economies has been broad based. Though the contraction has been sharpest in the private residential (housing) sector, nonresidential (business) investment—which is a much larger share of total investment—accounts for the bulk (more than two-thirds) of the slump. There is little sign of recovery toward precrisis investment trends in either sector.
The figure above illustrates how far advanced economy investment has fallen relative to the precrisis period and past forecasts and that there has been no recovery in investment spending (the log scale shows percentage change in investment).
The following figure, which covers only advanced economies, demonstrates that the investment slump has affected both residential and nonresidential investment. And, as far as the latter is concerned, investment spending on both structures and real equipment are significantly down relative to past trends.
These trends have real consequences. As the economist Michael Roberts points out, “Global industrial output growth continues to slow and in the case of the G7 economies (red line below), industrial production is now contracting.”
He also highlights the fact that “world trade . . . is in significant negative territory (red line below). This is partly due to the collapse in energy and other industrial raw material prices. But even when you strip out the impact of the deflation in prices, world trade volume is basically static (blue line) and well below even the low world GDP growth rate of around 2.5%. Countries with low domestic demand can expect no compensation through exports.”
The investment slump has also taken its toll on productivity. According to the Financial Times:
Output per person . . . grew just 1.2 per cent across the world in 2015, down from 1.9 per cent in 2014. A slowdown in Chinese productivity was a big driver, as was poorer output growth in commodity producing countries in Latin America and Africa because of weaker oil prices and production.
Productivity growth in the eurozone, measured by gross domestic product per hour, is set to be a feeble 0.3 per cent and barely better in Japan at 0.4 per cent.
But the US, which appeared to be outperforming other advanced economies, is now increasingly concerned at the deterioration in its own performance. Growth in output per hour slowed last year to just 0.3 per cent from 0.5 per cent in 2014, well below the pace of 2.4 per cent in 1999 to 2006.
Moreover, things are fast deterioriating in the US. The Financial Times reports that productivity will likely fall this year for the first time in three decades. “Research by the Conference Board, a US think-tank, also shows the rate of productivity growth sliding behind the feeble rates in other advanced economies, with gross domestic product per hour projected to drop by 0.2 per cent this year.”
Sadly, as Roberts argues, most governments still seek to rejuvenate their respective economies by some combination of monetary easing, cuts in public investment, privatization, weakening labor rights, and new free trade agreements. These policies have not worked and there is no reason to think that they ever will.