World Economy: Loop the Loop!

By Shlomo Maital

 ifo

     From time to time, I answer a questionnaire distributed by a German research institute, called Ifo World Economic Survey. Based on that survey, Ifo publishes a “business cycle clock” for the global economy. The latest one is shown above.

     To explain: the X axis is the current situation: good or bad; the Y axis is the change, improving or deteriorating.   The ‘clock’ starts in 2007, just before the 2008 subprime mortgage crisis that began in the US and spread around the world.

     What we see is this: First, a huge ‘loop the loop’ cycle, stretching from 2007/8 to 2011, with a very deep recession. Then, two smaller loops, 2012-13 and 2014-15 cycling around ‘no change’ and ‘average situation’. The cause?   Weak Chinese growth, and very weak EU growth.

       Once the global economy had a powerful locomotive tugging it upward. First, the locomotive was the US economy, whose appetite for goods created enormous demand and pulled the Asian economies into high growth. Then, the locomotive was China’s economy, whose rapid growth spread to surrounding countries, as China imported components.

       Today? The global freight train has no locomotive. Not the US, not EU, not China. Until a locomotive emerges, and one may not, the world economy will continue to do these small ‘loop the loops’, like a stunt plane, around the average.

       Have you strategized this rather gloomy forecast?

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