Wealth BuildingEconomic recovery: What are the scorecards saying? |
That fiscal and monetary intervention has so far saved the day as economic growth is clearly rising.
I have to say that I'm increasingly losing my interest in foreign cable TV focused on stock markets.
It is not the propped-up augmentations or crusty red lipped make-up jobs that are causing such angst, but instead my own cognitive limitations. In fact, to be blunt, these channels deliver such enormous quantities of market and economic data that they make me feel rather giddy and I cannot recall a situation when an 'important data release' resulted in a change to our investment decisions or portfolios.
But I am not rubbishing the media, they play a crucial role in market behaviour and when they focus on longer-term themes, the information can be extremely useful. On this note, I decided to make use of The Economist to highlight one or two interesting points as far as the global economic recovery is concerned.
The Economist follows 43 countries' annual GDP growth rates and I compared the most recent quarterly trend to the previous year. 28 countries have shown an improvement, most of which have enjoyed staggering gains. I have yet to report on economic growth for the final quarter of 2009 and four have gone backwards for their own specific reasons. 38 countries are predicted by economists to have positive economic growth in 2010 and all bar Venezuela will be better off than in 2009. With respect to Venezuela, this oil rich country can ascribe its economic woes to its tyrannical, buffoonish and crazed leader rather than due to the global financial crisis.
I then looked at inflation, trying to establish whether the improvement in growth has so far been accompanied by a substantial adjustment in prices. In fact, the contrary has occurred. Looking at the latest annualized quarterly CPI releases provides very clear evidence that inflation is at present not a global threat. Only 10 out of the 43 countries have shown a pick-up in prices and only 5 of these can be considered meaningful, with the US now at 2.7% from almost 0% last year and India leaping to over 15% from 9% being the stand-out situations. It is worth mentioning that inflation could still prove worrying in certain parts of the world where monetary stimulus has been excessive, China may well be the area where this concern becomes most pronounced.
The Economist does not show a trend in unemployment but we are all very aware as to what it has been. They do, however, print the latest unemployment rate in each country. A few broad-based comments should suffice. Firstly, unemployment has risen markedly globally over the last 18 months. Most developed western countries enjoyed employment levels in the mid to low 90%'s over the past decade. US unemployment hovered around 4% to 5% for quite a while, as an example. Western developed countries now suffer unemployment rates at double digit levels with the US at exactly 10%. Secondly, out of the full universe of countries, South Africa is by far the worst off with an official rate of 24.5% followed by Spain at 19.5% and then Turkey at 13%. Thirdly, unemployment levels in South East Asia are now much lower than those in the Western World. Rates of less than 5% are common place in Asia whilst double digit prevails in the west.
Lastly, employment statistics are lagging in their nature and although the global economy is mending, lay-offs could still be rising.
Now that we have shown that economic growth has been improving accompanied by relatively benign inflation but increasing unemployment, the next question was how countries have fuelled their economic revivals. My real interest was to identify those nations that have stoked their recovery with money which they do not have. In other words, how many countries have spent now to pay later? This is established by perusing through the fiscal positions of the various countries and their external accounts, most notably the current accounts. Only one out of 43 countries ran a budget surplus in 2009. By far the worst budget balance as a percentage of GDP offenders were Britain (-14.2%), Greece (-13%), Spain (-11.8%) and the United States (-9.9%). Across the 43 countries the average deficit is about 5% and thus South Africa is much in line with the rest.
It is concerning that many of the serial budget deficit offenders also happen to be running serious current account deficits. 23 countries have current account deficits, which kind of makes sense as the size of the overall deficit should more or less equate to the size of the overall surplus and there exists a relatively even split between surplus and deficit countries. There is no geographic pattern that I can identify with respect to deficits; Germany, as an example of a European nation, has a huge surplus as it supplies machinery to China which, as we all know, enjoys a massive surplus. Against this, a number of Germany's European neighbours have large deficits. The idea that commodity exporters should be the recipients of surpluses is erroneous; Canada, Australia, Brazil and South Africa persist with current account deficits. A clear observation is that no major oil producing nation is burdened by a deficit.
So what does this tell us? Obviously that fiscal and monetary intervention has so far saved the day as economic growth is clearly rising and that a reprieve presently exists on monetary policy - inflation has so far not forced too many Central bankers' hands. That budget and current account deficits are common place but there are clearly winners and losers and these are not obvious. Prudence is necessary when allocating capital as twin deficits are not sustainable in the long-term. From a South African perspective, we are on balance not in a catastrophic position relative to peers, but where we are woefully inadequate is job creation and this cannot be overemphasized.
I will re-look at these numbers in six months time and report back on important changes.
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