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Unsustainable economic growth
The OECD is now forecasting a 4% contraction for the eurozone. Put into this perspective, my forecast of -3 to -4% growth for Belgium this year does not seem as outlandish anymore.
The key question however is whether growth will rebound next year, and retrace the previous growth path.
In my view, this will not be the case. If growth rebounds:
* it will not get back to the previous level.
* potential growth for the US and the eurozone will be cut in the following years for different reasons.
US gdp growth was inflated by credit growth. Suppose growth had not been pushed higher by the credit boom, how high would it have been? Potential growth in the US has been overestimated by not taking into account artificial growth fuelled by credit. Perhaps we could use the currrent account deficit as a shortcut: how high would US GDP growth have been in the period 1996-2007? If the current account would have been kept balanced, US growth would have been much lower. How much is a question I am trying to figure out together with Brad Setser.
For the eurozone, the question of potential growth is also an issue. Remember that the eurozone was criticized (especially in anglosaxon media) for growing too slowly. With hindsight, European growth was more sustainable. Nevertheless, the current crisis shows that the economy in the eurozone has been hit as severely as the "unsustainable" US economy.
So, I am spending some time to figure out what the sustainable growth path will be for the US and Euroland in the coming years. Your help and suggestions are welcome. The bottomline is that if US and Eurozone potential growth has been overestimated, it will have severe consequences for
* the cost of aging
* labour markets
* corporate profits
* public budgets
etc
6 Comments
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frederic
On 23 Mar, 2009
Geert,
In my opinion the European growth was sustainable, but we are living in a globalised world where one fails the rest fails.
- we where exposed to the toxic credits of the US housemarket.
- we export a lot to the east, but the US buys a lot from the east, so when they stop buying from the east, the east stops buying from us.
- europe didn't have a credit boom as big as in the US.
I think, in a situation where we wouldn't have a credit crisis, at some point the US would have got into problems, there balans was of, they lend to much from the east, they spend to much, not only consumers but also the gouvernment in wars etc... .
So even without the credit crisis we would heva seen that the US model or growth wasn't sustainable.
The European growth without the credit crisis would have been more realistic, it would also feel the crisis in the US (because we export much to the east, US buys from East, ...) .
But Europe is more balanced, our economy is based on services and on export , as a nation you need a good balance between those two to make your economy stable .
The export make the "easy money" but are very dependent on the other nations. The services also make money (but more slowly, out of services there will come technology wich wil help us to solve the aging problem, transport problems, etc... ) . Maybe even on the long term the services will be even more profitable then the export because we will learn so much out of our services we will start exporting them(or the tech part) at some point to nations who don't have the mright now (let's say, China to save there enviroment, there aging problem, ...) .
it's sad we where exposed so badly to the toxic credit world from the US true our greedy banks. -
inge meersmans
On 23 Mar, 2009
http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2009/03/16/long-term-outlook-slow-growth-and-deflation.aspx
Een interessante visie (wél deflatie in de VS) die niet door iedereen gedeeld wordt. Indien de VS met deflatie te kampen krijgen, zal er wel een stuk naar ons 'overwaaien'. Van de zogenaamde ontkoppeling van Europe t.o.v. de VS heb ik nog niet veel gezien! -
Geert
On 23 Mar, 2009
@Inge,
Dank voor het stukje.
Als iemand interessant materiaal ziet over potential growth en sustainable growth, mag het altijd worden doorgestuurd.
geert.noels@gmail.com
dank
Geert -
Theo
On 23 Mar, 2009
One cannot ignore the globalised world we live in and the crisis which we caused ourselves. This is the world we live in.
Any sustainable solution would have to take those factors into account. Ignoring them would not lead to sustainability.
Further I would like to pint out that a sustainable growth rate is different for every country due to its specific factors. thus in determining that rate, one would have to start by analysing the entire system... a bit like in biodiversity: you take each cell and study its effect on all the other cells.
Then you determine the rate of growth you need to generate just to restart the economy, followed by the rate you would need to either maintain that growth or increase it in terms of the combination of factors you need to take into account.
You would also need to determine the rolls to be played by the different stakeholders in the economy. -
Kevin
On 23 Mar, 2009
http://www.chrismartenson.com/crashcourse/chapter-1-three-beliefs
Een videoreeks van 20 delen die in essentie gaat over de vraag die je hier stelt. Mogelijks ken je deze al.
Wat ik me afvraag is hoe je tot een resultaat kunt komen dat overeen komt met de werkelijkheid. Ik bedoel: hoe ga je inflatie in rekening brengen? "Real gdp growth" is inflatie-gecorrigeerd, maar er zijn veel vragen over onze huidige manier van inflatiemeting (shadowstats.com ken je waarschijnlijk al). Nu de Amerikanen en masse geld aan het bijdrukken zijn, wordt inflatiecorrectie zeker een issue. Veel succes zou ik zeggen =) -
Koen D.
On 25 Mar, 2009
De groei waar we altijd naar streven:
http://www.chrismartenson.com/crashcourse/chapter-5-growth-vs-prosperity
Martenson heeft veel zaken (ook) heel goed begrepen.
off topic:
Heb net een zeer interessant boekje gelezen dankzij een beleggersblad, "wat heeft de overheid met ons geld gedaan" van Murray Rothbard.
Econoshock staat nu op het menu...
