GDP numbers for the industrial countries show that economic performance is actually not as dismal as often complaint. Taking into account that these countries show moderate or no population growth at all, economic growth rates above one per cent are not bad at all. In the third quarter of 2016, the US economy grew 1.6 % down from 2.8 % the year before, while the economic growth remained steady in the Euro Area at 1.6 %. Japan is still struggling as its growth rate fell from 1.9 % to 0.8 %. Britain is doing fairly well with an economic growth rate of 2 % in the third quarter of 2016, only slightly down from the third quarter of 2015 when the economic growth was 2.2 %. While there is much lamentation about low growth, the numbers are actually better as the public mood and media discussion seem to suggest.
The growth rate so-called fixed capital formation fell in the United States from 4.7 % to 1.4 % and in the United Kingdom from 5.1 % to 1.2 from the third quarter of 2015 to the third quarter of 2016. In the Euro Are, investment growth was relatively strong as it rose from 2.2 % in the third quarter of 2015 to 3.2 % in the same period of 2016. Japan, which experienced still a strong growth of investment in 2015, suffered a setback in 2016 when investment growth slowed down to 0.5 % in the third quarter of 2016.
Private consumption continued to grow strongly outside of Japan. In the United States, after rising 3.3 % in 2015 (3Q), private final consumption receded to 2.6 % in 2016, while the rate for the Euro Area remained steady at 1.8 % and accelerated in the United Kingdom from 1.3 % to 2.8 %. In Japan, the growth of consumption has not yet recovered at a rate of -1.1 in the third quarter of 2015 and 0.1 in the third quarter of 2016. Austerity, as it is often claimed, happens neither in the US nor in Europe.
Official unemployment nearly disappeared in the United States as the unemployment rate fell to under five percent in the third quarter of 2016, well below the rate of over ten per cent, as it is still the case in the Euro Area. Even lower than in the United States is the unemployment in Japan, where in currently stands at three per cent. Putting these figures in perspective, however, requires taking into account the peculiarities of the individual labor markets. While in the United States, for example, the unemployment rate has fallen, the labor participation rate has fallen as well, while labor participation has been increasing in Europe over the past couple of years.
Exchange rate and current account
There has been a steady trend of appreciation of the U.S. dollar that as lowered the euro exchange rate almost to parity. The Chinese yuan continues to depreciate together with the British pound, which is still suffering from the Brexit blues. Not least because of the depreciating euro, the Euro Area enjoy a huge current account surplus that rose from 3.8 % of GDP in the second quarter of 2015 to 4.3 % in the same period of this year. Even worse than for the U.S., which has a current account deficit of 2.5 %, is the balance for the United Kingdom that rose from 4.7 % of GDP to 5.9 %.
Consumer price inflation is still extremely low in all of the industrialized countries. However, with the exception of Japan, price inflation has been rising since 2015. While in October 2015 the rate of consumer price inflation in the United States was still as low as 0.7 %, this variable rose to 1.9 % in October 2016. A major rise, albeit at very low levels, occurred also in the Euro Area and in Great Britain, where prices rose from a rate of 0.3 % to a rate of 0.7 % in the Euro Area and from a rate of 0.2 % to 0.9 % in the United Kingdom over the same period. Only in Japan did the rate fall from 0.30 % in October 2015 to a rate of -0.06 % in October 2016.
Before long-term interest rates rose in November of 2016, they have fallen until October 2016 to 1.76 % in the United States, to 0.78 % in the Euro Area, to 1.08 % in the United Kingdom and to a negative rate of -0.06 % in Japan. The decline of long-term interest rates happened in the United States although short-term interest rates rose from 0.25 % to 0.72 %. Deflationary expectation were still well in place and have changed only recently. Until October 2016, the Euro Area experienced negative short-term interest of -.05 % in October 2015 and -0.31 in October 2016. Both in the United Kingdom and Japan, short-term interest rates also declines over this period to 0.37 in the United Kingdom and to 0.06 in Japan.
Money growth accelerated in the United States, Japan and the United Kingdom, but slowed down in the Euro Area. In the U.S., the rate of growth of narrow money (M1) rose from an annual rate 3.8 % in October 2015 to a rate of 8.2 % in October 2016, and slowed in the Euro Area from a rate of 10.3 % in October 2015 to 6.1 % in October 2016. In Japan the annual rate of the growth of narrow money accelerated from 4.1 % in October 2015 to 7.8 % in October 2016, and in the United Kingdom during the same period from 6.5 % to 10.6 %.
Political uncertainty continues under the new government. The legal procedures in connection with the corruption scandal involving the Brazilian oil company Petrobras affect the heart of the Brazilian political system. All political parties, so it seems, are involved in widespread corruption. Hardly a day goes by without some news about another prominent politician who is involved in a corruption scandal. In the meantime, new areas of corruption are under investigation that affect also local politicians. Consequently, there is not yet green light for a solid economic recovery.
Over the past two decades, Mexico has experienced a period of strong growth with low inflation. There has been a massive inflow of foreign direct investment. Employment has grown steadily. Yet now dark clouds appear on the horizon. It still must be seen whether the threats of the new U.S. president-elect can be taken seriously or not, but nevertheless, growth outlook is already dimmed and there are growing inflationary pressures. The first signal that riskier times are ahead will come from the currency market when the Mexican peso begins to weaken.
South Korea, one of the economic star performers of the past couple of decades, enters troubled waters. Korea’s first female president who has been in office for nearly four years faces impeachment on ground of her influence paddling. When the Constitutional Court confirms the impeachment, there will be a new elections in 60 days. There should be little concern, however, as to the economic performance of the South Korean economy. The one thing South Korean has to fear are incalculable threats by North Korea that could go so far as to escalate into a military confrontation.
Russian president Putin tries hard to define his country’s global role. Russia has increased its military presence in the Middle East and is actively involved in the Syrian war theater. At the same time, NATO is moving eastwards in an attempt to protect the states that have gained independence with the fall of the Soviet Union.US-Russian relations have deteriorated during Obama’s presidency. A new chapter in U.S.-Russian relations will begin when Donald Trump will assume his presidency after his inauguration in January 2017. When Western sanctions will be lifted and oil prices will recover, the Russian economy could experience a period of excellent performance for long period of time.