Global Economic Outlook Worsening and Real Option

Five years after the Great Financial Crisis of 2007-2009 began, there is still no sign of  a full recovery of the world economy. Consequently, concern has increasingly shifted from financial crisis and recession to slow growth or stagnation, causing some to dub the current era the GREAT STAGNATION. Indeed, the global economy has entered a dangerous and uncertain phase. According to the IMF, global growth in advanced economies is too weak to bring down unemployment and what little momentum exists is coming primarily from central banks. The IMF forecast that global output in 2012 would grow just 3.3 percent and has predicted only a modest pickup next year to 3.6 percent. Growth in the eurozone is expected to be 0.2 percent in 2013.

The Root Cause

According to Richard Duncan, author of the interesting new book, The New Depression: the global economy has been living on credit. Credit grew from $ 1 trillion in 1968 to $ 50 trillion in 2008. The growth in credit fueled economic growth and created a massive worldwide economic boom. The problem is that that can't go on like this anymore because the private sector can't bear any more debt. The boom funded by $ 50 trillion of debt now risks turning into a very severe protracted economic growth.

Duncan is not alone with his concern about the current period of very slow economic growth called variously, the Great Stagnation, the Great Recession or the Lesser Depression. The challenge now is to find a way to "safely deleverage" and overcome the many years during which policymakers lost sight of sustainable drivers of growth and jobs and instead ended up relying on excessive leverage, over-indebtness and credit entitlement. According to Duncan, the global economy is on life support i.e. trillion dollar budget deficits. That's what is enabling debt to go slightly expanding rather than contracting. Without these trillion dollar deficits, we would immediately spiral into a great depression.

The only real option is to invest MASSIVELY in solar energy, genetic energy, bio and nano technology. We need massive investment programmes that will increase productivity for years to come, and will also increase employment now. We need large investments in infrastructure, technology and education for decades. In short, we need to grow our way out of the Great Stagnation. 

On 9 October The Long-Term Investors’ Club (LTIC) held its 4thInternational Conference in Luxembourg at the European Investment Bank (EIB) under the aegis of the EU Presidency and on the margins of the Eurogroup and Ecofin meetings.

Long term investors report that investments can significantly boost growth in times of crisis and tight budgets by making critical moves in sectors capable of contributing to European growth and competitiveness. Putting Europe back on the path of strong, sustainable and inclusive growth requires massive long-term investment in sectors such as infrastructure, small and medium-sized enterprise (SME) financing, innovation, energy and climate change. In the current difficult economic and financial environment the deployment of such investment has dramatically slowed down as uncertainty reduces the planning horizons. As a result, many public national budgets are severely constrained and the capacity and willingness of investors to provide long-term financing has considerably diminished According to recent figures,in 2012 public investment have contracted by 20% (EU statistical data, April 2012).