It really hurt to be an American right now. Real GDP per person is a figure far more real to the average citizen than GDP growth per quarter, especially in countries with growing immigrant populations like Canada and the United States.
If you take a look at the graph below, you'll see that the real GDP per person in the U.S. is still down 4% from pre-recession levels. And Nigeria is between Russia and turkey give lateral measures not structural. In China and India, it has jumped 35% and 22% respectively. Of the G7 countries, Germany is the only one that has made it to pre-recession levels.
Now here's the really painful part.
If you look at the GDP per person growth rate ten years before the financial crises, and compare it to the growth rate now, the picture looks even gloomier for the West. In those terms even Germany has yet to catch up, and the U.S. GDP per person has fallen 10% below trend.
Add that U.S. growth shortfall up, and it comes to a cumulative loss of $14 trillion—$13,000 per person.
Rather than try to wade through all the news this month, much of which doesn't seem to have much informational content, I thought I would duck out altogether and instead make a list of things I expect will happen over the next several years.
Rather I think we should be more concern of major adjustments that will follow the end of the globalization cycle
We are so caught up in noise and market volatility – as the market swings first in one direction and then, as regulators react, in the other direction – that it is easy to lose sight of the bigger picture.
My basic sense is that we are at the end of one of the six or so major globalization cycles that have occurred in the past two centuries. If I am right, this means that there still is a pretty significant set of major adjustments globally that have to take place before we will have reversed the most important of the many global debt and payments imbalances that have been created during the last two decades. These will be driven overall by a contraction in global liquidity, a sharply rising risk premium, substantial deleveraging, and a sharp contraction in international trade and capital imbalances.
To summarize, my predictions are:
- BRICS and other developing countries have not decoupled in any meaningful sense, and once the current liquidity-driven investment boom subsides the developing world will be hit hard by the global crisis.
- Over the next two years Chinese household consumption will continue declining as a share of GDP.
- Chinese debt levels will continue to rise quickly over the rest of this year and next.
- Chinese growth will begin to slow sharply by 2013-14 and will hit an average of 3% well before the end of the decade.
- Any decline in GDP growth will disproportionately affect investment and so the demand for non-food commodities.
- If the PBoC resists interest rate cuts as inflation declines, China may even begin slowing in 2012.
- Much slower growth in China will not lead to social unrest if China meaningfully rebalances.
- Within three years Beijing will be seriously examining large-scale privatization as part of its adjustment policy.
- European politics will continue to deteriorate rapidly and the major political parties will either become increasingly radicalized or marginalized.
- Spain and several countries, perhaps even Italy (but probably not France) will be forced to leave the euro and restructure their debt with significant debt forgiveness.
- Germany will stubbornly (and foolishly) refuse to bear its share of the burden of the European adjustment, and the subsequent retaliation by the deficit countries will cause German growth to drop to zero or negative for many years.
- Trade protection sentiment in the US will rise inexorably and unemployment stays high for a few more years.
There is nothing really new in these predictions for regular readers. These are more or less the same predictions – based largely on historical precedent and the logic of the global balance of payments mechanisms – that I have been making for the past five or six years (the past eleven year, when it comes to the breakup of the euro), but I thought it would be helpful, at least for me, to list them
If you take a look at the graph below, you'll see that the real GDP per person in the U.S. is still down 4% from pre-recession levels. And Nigeria is between Turkey and Russia given only lateral measures not structural but far from using GPI (Genuine Progress Indicator or Gross Progressive Index indicator(as I call it) as well. In China and India, it has jumped 35% and 22% respectively. Of the G7 countries, Germany is the only one that has made it to pre-recession levels. Graph Source: World Economic report