Signs Of Global Growth Slump Linger, But Stocks Couldn’t Be Happier

Late last month in “Pondering A Slow Growth World: Have We Entered A New Era?” we questioned whether perhaps policymakers are effectively pushing on a string.

That is, is it possible that something short-circuited post-crisis and, as WTO chief economist Robert Koopman put it last year, “that the timing belt on the global growth engine is a bit off or the cylinders are not firing as they should?”

The answer appears to be yes. Let’s take a look at a few simple charts, all courtesy of Credit Suisse. First is the simplest measure of all, global GDP:

(Chart: Credit Suisse)

That’s not horrendous, but it’s not exactly inspiring either. Here’s CS’s take:

“We expect the months ahead to bring continued slow global growth, Fed hikes, fragile markets, and political uncertainty.”

Gee, sounds great, doesn’t it?

Next, let’s look at industrial production.

(Chart: Credit Suisse)

Now that, at the risk of being overly pessimistic, is pretty horrendous. Again, we go to Credit Suisse:

“Since late 2014, global industrial production, trade, and goods demand have stagnated. The slump is related to slowing Chinese investment, which triggered fx, commodity, and credit market volatility. The effects are ‘passing through’ the world economy: this isn’t a persistent global deflation.”

Well yes, it kind of is a “persistent global deflation.” There’s been an entrenched deflationary impulse embedded throughout markets for the better part of seven years, Europe and Japan are languishing in the deflationary doldrums and the US isn’t doing much better. It’s not clear exactly why that’s not “persistent global deflation.” However, if you are dying to experience persistent inflation, take a trip to Venezuela.

As far as EM goes, well, just have a look at industrial production in the “B” and the “R” in BRICS:

(Chart: Credit Suisse)

Let’s be clear: it doesn’t pay to be perpetually bearish. If the last seven years have taught us anything, it’s that. If the late Mark Haines (who passed a away in 2011) were still alive today and had acted on his 2009 “this is the bottom” call which he made on national television, he’d probably be a billionaire by now.

But the problem isn’t financial assets. They’re doing just fine. The problem is the disconnect between that and the real economy. Yes, many a permabear has been making that argument for years, but at this juncture it seems to have reached a kind of logical extreme, which is why it’s confusing when other people seem confused by it. Let’s take one example from Bloomberg today (this is from Luke Kawa, who is a bright guy by the way):

“U.S. consumers were supposed to be the world's economic engine, but haven't been straying from domestic shores.

“Despite the double-digit advance in the U.S. trade-weighted broad dollar index in 2015 on the heels of the rally in the second half of 2014, real goods imports (excluding petroleum) have gone nowhere for over a year:

“That is, although it got a lot cheaper for the U.S. to buy stuff from the rest of the world, Americans haven't been doing so.

“This surprising finding comes to us from Brad Setser, senior fellow at the Council on Foreign Relations, who observed that this metric is down on an annual basis, and that imports have actually added to growth over the past three quarters.

“‘Real goods imports haven’t really changed at all for say the last 15 or so months,’ he writes.”

This “surprising finding” isn’t really surprising at all. Global growth and trade have entered a new phase. The term “new normal” is cliched to the point of absurdity, but this is one case where it certainly seems to apply.

As Scott Miller, trade expert at the Center for Strategic and International Studies told WJS last year: “...it’s fairly obvious that we reached peak trade in 2007.”

Or, in the more colloquial terms Credit Suisse uses, we’re all “swimming against the tide.”
And yet the Dow crossed 18,000 today. Go figure.

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