TOP MACROECONOMIC THEMES
In the United States, the standing of President Donald Trump is getting even more precarious. He has obvious difficulties in learning that a country is not a business and that leading the government as President is not the same as being the boss of a company. His erratic behavior irritates the political establishment and the pundits of the media. Nevertheless, the U.S. economy is doing remarkably well with low inflation, low unemployment, low interest rates a good economic growth. The U.S. stock market is moving from one record to the next. Since the election of Donald Trump in November 2016, the Dow Jones stock market index has risen from around 18,000 points to 22,872 points on October 13, 2017.
The United Kingdom is on its way of becoming the sick man of Europe. After the Conservative’s Party’s disastrous losses at the parliamentary election in June 2017, its national congress at the beginning of October did not bring the desired recovery of the reputation of the party and its leadership. The majority of the government supporters the House of Commons is minimal, and the position of the Prime Minister Theresa May is under assault. The British Labour Party, under the leadership of the outspoken Socialist Jeremy Corbyn is on the rise. The economy suffers from the manifold uncertainties surrounding the conditions of the exit of the United Kingdom from the European Union (Brexit).
In Europe, the centripetal forces are on the rise. While the history of Europe since the end of World War II was one of integration and unification, segregationist movement gain momentum. The latest point is case in the independence movement of Catalonia that wants to separate from Spain. Brexit, the decision of the United Kingdom to leave the European Union faces the domestic dilemma of an independent Scotland. In Eastern Europe, several governments of member countries of the European Union challenge the authority of Brussels. The massive immigration into Europe from the Middle East and Africa threatens the Union’s cohesion.
Africa is the underreported growth story. Several African countries register economic growth rates of more than five percent. The African population is growing strongly and modern technology spread rapidly among the young people.
The shift of the center of world economic growth to Asia keeps going on. India is trying to catch up with China, and Pakistan is joining in. These three countries together with Indonesia comprise a population of 3.1 billion people and represents 41 percent of the world’s current population of 7.6 billion people. In as much as these countries pursue free market reforms, their economic growth will go on. Only politics can stop this trend. In this respect, however, the list of potential catastrophic conflicts is large.
Macroeconomic Data in Comparison
Both, the United States and the Euro Area continue on their growth path. The gross domestic product (GDP) of the United State rose from 1.9 percent in the second quarter of 2016 to 2.1 percent in the second quarter 2017. In the Euro Area, GDP rose from 1.9 percent to 2.0 percent in the same period. Over the past couple of years, the German economy works like a locomotive that pulls many of the other European countries to higher economic growth rates. While in the rest of Europe, the unemployment is still very high, Germany registers very low unemployment at the level of the United States, where the rate fell from 4.9 percent to 4.7 percent from the second quarter of 2016 to the second quarter of 2017.
As has been the case over the past decades, the United States continues to suffer from a persistent current account deficit of two to three percent. Recently, the current account deficit in percent of the gross domestic product fell slightly from 2.6 to 2.5 percent over the year to the first quarter of 2017. The Euro Area continues having strong current account surpluses although these fell slightly from 4.2 percent in the first quarter of 2016 to 3.9 percent in the first quarter of 2017. Japan, likewise, has a strong current surplus. It rose from 3.9 percent to 4.0 percent over the year before the first quarter of 2017. The United Kingdom, which still suffers from the Brexit shock, reduced its current account deficit from 5.4 percent in the first quarter of 2016 to 3.4 percent in 2017, mainly due to its weakening economy.
After all the efforts by the central banks to ‘reflate’ the economies, the official inflation rates in the industrialized countries finally seems to take off. The rate for the United States almost doubled from 0.97 to 1.63 percent from July 2016 to July 2017. In the Euro Area, the inflation rate rose quite remarkably from 0.62 percent in July 2016 to 1.21 percent in 2017. Even Japan saw its price level to move out from a deflationary inflation rate of -0.18 to a slight inflation of 0.08 percent.
As of now, the policy of the United States Federal Reserve System (FED) of raising its interest rates has not yet have a discernible effect on the economy. Up to now, even the stock market seems unimpressed by the fact that the FED has doubled its policy rate of interest from 0.62 percent in July 2016 to 1.22 percent in July 2017 with the consequent effect that long-term interest in the U.S. rose from 1.50 percent to 2.32 percent from July 2016 to July 2017.
In the Euro Area, the policy interest rate is still negative at -0.33 percent in July 2017.
Despite many predictions of doom and gloom for the Chinese economy, China’s economic growth goes with a current rate of 6.9 percent. Now, among the Asian countries, India is catching up with high economic growth rates after a long slow growth period. The reforms of the recent Indian governments pay off. With 5.7 percent, India is approaching the growth rates of China. Several other Asian countries remain in the league of economic growth rates above six percent and even seven percent such as Nepal (7.5 %), Laos (6.9 %), Bangladesh (6.9 %), the Philippines (6.8 %), Iran (6.5 %), Vietnam (6.4 %). The economic recovery from the war is fully under way in Iraq, which registers an economic growth rate of over ten percent.
Some African countries are doing remarkably well with economic growth rates such as of close to eight percent for Ethiopia, seven percent for the Ivory Coast and over six percent for Senegal, Tanzania, and Kenia. African countries that have growth rates of over five percent include the Central African Republic, Eritrea, Guinea-Bissau, Mali, Rwanda, Malawi, Gambia, and Togo.
Economic growth in Latin America is lagging Asia and some leading countries in Africa along with the emerging economies in Eastern Europe. Venezuela is a complete basket case. In January 2017, Venezuela’s annual economic rate was – 18.6 %, which amounts to a veritable depression. At the same time, the country suffers from an annual inflation rate of 741 %. Both indicators are probably even worse in reality given the tendency of the Venezuelan government to manipulate and outright falsify its economic data. Brazil is slowly recovering from its deep recession. In July 2017, the annual economic growth rates rose to 0.3 percent, after having hit a low of – 5.8 % in January 2016.
Argentina’s economic growth is extremely volatile. After a deep recession with an annual economic growth rate of – 4.2 percent in July 2014, the Argentinean economy recovered with a rate of 3.8 in 2015 only to fall back again into a slump 2016, when negative economic growth rates were registered in the range of close to four percent. In July 2017, a new recovery is under way when the Argentinean economy achieved an annual growth rate of 2.7 percent. In Mexico, after a swift recovery from the 2008 international financial crises, economic growth has been relatively weak and has slowed down over the past couple of years from a rate of around four to two percent and as of July 2017 to an annual economic growth rate of 1.8 percent.
Antony P. Mueller
October 15, 2017