New data from the International Monetary Fund confirms that last year’s collapse in global GDP was even worse than first reported.
As the chart shows,the fall when measured in current dollars was a record $4.7tn, versus $3.3tn in 2009. And GDP was down 6% in percentage terms versus 5.3% in 2009:
- Even more worrying is that the IMF have now revised down their 2016 outlook
- They now expects GDP this year to be just $0.8tn higher than in 2015 – only 1% higher
- And they don’t now expect GDP to recover to the 2014 level until 2018 at the earliest
This highlights the headwinds now hitting the economy as we arive at the “demographic cliff“. The World Bank’s country director for Indonesia, Rodrigo Chaves, noted this week:
“No country becomes rich after it gets old. The rate at which you grow [with] a whole bunch of old people on your back is much lower than the rate of growth at which you can grow when people are active, are educated, are healthy.”
This is simple common sense, of course. But the IMF and most policymakers still refuse to accept the obvious conclusion – that an ageing global population cannot possibly grow at the same rate, as when everyone was in the peak Wealth Creator 25 – 54 age group. The problem with their obstinacy is two-fold:
- It means they persist in adding more stimulus, arguing that this will quickly “flush the blockages”
- It also means companies are encouraged to invest in extra capacity, for which there is no market
That is why the US is now spending $164bn on building new shale gas-based petrochemical capacity. Producers were assured by policymakers that growth would return to previous levels. So they felt they did not need to obtain binding “letters of intent” from potential customers. The result, sadly, is that next year will likely see major over-capacity.
It is not too late to rescue the situation. It just needs companies and investors to abandon their reliance on policymakers’ guidance. It is 8 years since the Crisis began, and clearly their policies have failed to produce the promised results. Instead, we all have to focus on developing new areas of growth, as I discussed on Friday.
The critical issue is that we have now returned to the demand-led markets that predominated before the SuperCycle. So we need to focus on finding new customers, and on helping existing customers to grow their demand. This will require greater resources – technical and commercial – to be successful.
But doing nothing, and hoping that everything will somehow turn out alright, is becoming a certain recipe for major pain in the future as demand continues to disappoint.