The World's Stagnant Economy

Eswar Prasad and Karim Foda of the Brookings Institute released their most recent iteration of the TIGER or Tracking Indexes for the Global Economic Recovery indicator, a measure of the economic health of 20 nations.  According to TIGER, the world's economic picture, as we all suspect, is not particularly healthy as I posted back in July

The world's economy is "on the ropes" according to the authors despite endless meddling by the Federal Reserve, the ECB, the Bank of England, the Bundesbank and the relatively tiny Bank of Canada.  The authors note that the only "bright spot" in the world economy is the United States, however, with economic growth falling from a lukewarm 2.0 percent in the first quarter of 2012 to a downward revised 1.3 percent in the second quarter.  As shown on this graph, when looked at in historical terms, a growth rate of 1.3 percent should hardly be considered a "growth rate" at all:

As you can easily see, the second quarter 2012 GDP growth rate is among the lowest quarterly growth rates during an economic expansion since 2002. 

TIGER looks at three indicators; real activity, financial and confidence.  Real activity includes industrial production, imports, exports, employment and GDP.  Financial indicators include equity markets, stock market capitalization, credit growth, emerging market bond spreads and the TED spread.  Confidence indicators include consumer and business confidence.  Data is gathered for both advanced economies and emerging markets.

Let's take a look at a few of the interesting indicators starting with real activity.  Here is a graph showing industrial production over the period from January 2003 to July/August 2012:

The industrial production index has dropped to new post-Great Recession lows, well off its early 2010 highs.

Here is a graph showing GDP growth over the same period:

Here is a graph showing GDP growth just prior to, during and since the Great Recession:

GDP growth for advanced economies (blue line) is hovering around 1 percent and, for many nations including the United Kingdom, is actually less than zero.

Here is an interesting graph showing credit growth (or lack thereof for the world's advanced economies):

Since equity markets have historically been linked to the "wealth effect", here is a graph showing the dramatic drop in equity growth since mid-2010 and that, until recently, growth in equities was negative for only the third time in the decade:

Today's economic growth is driven largely by consumer spending and consumer spending is closely linked to consumer confidence.  Here is a graph showing dropping consumer confidence in both advanced and emerging economies:

While all of the indicators are at levels above their nadirs during the Great Recession, since mid-2010, the data points to a drop in every indicator.  Economic growth momentum has dropped and despite the efforts of Mr. Bernanke and his cabal of central bankers and their arsenal of monetary experiments, the world's economy seems loathe to grow.  Even China, the world's bastion of economic activity appears to be experiencing a slowdown as growth appears to be falling below the government target.  After all, as the supplier to the world's toy-hungry consumers, China's economy can hardly be expected to escape unscathed as the rest of the world slips into recession.

As I posted here, it may well be that the world's economy has reached the "fiscal cliff"; perhaps the unfettered growth of government debt is coming home to roost as governments around the world are unable to stimulate as they did at the depths of the 2008 - 2009 implosion.  Perhaps this time, the world's economy really is different and we'll be lucky if we're only stuck with stagnancy for the foreseeable future.

The World's Grim Economic Growth Prospects

The analysts at the Brookings Institute have developed an index that they use to track the global economic recovery cleverly called the TIGER or Tracking Indexes for the Global Economic Recovery.  Dr. Eswar Prasad, Senior Fellow at the Brookings Institute and a Senior Professor of Trade Policy at Cornell University recently released his updated and rather sobering outlook for the world's economy.

As most of us are aware, the global economy is firing at about half-speed on a good day.  The economies of both the emerging and advanced nations of the world certainly look like they are running out of steam as evidenced by a string of bad news.  Unemployment in the Eurozone is at a new high and is stalled at a level above 8 percent in the United States.  Many of Europe's economies are also straddling the fence between modest contraction and modest expansion even though the world is supposedly in the third year of the post-Great Recession expansion.

A map showing the global economic and development data for both the advanced and emerging market economies as measured using TIGER is available here.  For the purposes of this posting, I'll select a few key countries and show how global growth is stalling out as measured by the overall growth index graphs from 2003 to the present and how this has left us standing on the edge of the next recession.  Please note that the overall growth index is composed of several economic measures as follows:

1.) Real activity indicators which includes industrial production, imports, exports, employment and GDP growth.

2.) Financial indicators which includes equity market indices, stock market capitalization and credit growth.

3.) Confidence indicators which includes business and consumer confidence.

Included for each country are graphs showing the performance of each of the indicators and economic measures as noted above which you can view by clicking on the country name.

Let's start with the world's advanced economies.  

First up, here is the overall growth index for the United States:

Here is the overall growth index for Canada:

Here is the overall growth index for the United Kingdom:

Here is the overall growth index for Germany:

Here is the overall growth index for France:

Here is the overall growth index for Australia:

Now, let's look at the overall growth indices for the world's key emerging economies.

Here is the overall growth index for Brazil:

Here is the overall growth index for Russia:

Here is the overall growth index for India:

Here is the overall growth index for China:

Do you notice a pattern?

Not a single one of the world's major economies is showing an upward trend in their overall growth index and all have shown a steady downhill overall growth index trend since their indices peaked in early to mid-2010.  The overall growth index is either negative or very close to zero in all cases, a rather foreboding scenario.  Basically, all of the quantitative easing, Twisting, liquidity injections, debt bailouts and years of near-zero interest rates have done absolutely nothing to prod the world's very reluctant economy back to life and yet the world's central bankers persist.

As Albert Einstein famously said "Insanity is doing the same thing over and over again and expecting different results."  Apparently, this is the mantra of today's generation of central bankers and politicians.  Either that, or they have failed to pay heed to their own failures from the lofty heights of their ivory towers.  After all, they get paid regardless of their success or failures.  

As Dr. Prasad stated:

"The global economic recovery is being held hostage by political brinksmanship that has created policy paralysis, undermined confidence and stymied the effectiveness of macroeconomic policy tools."