Opinion Sur
The evolution of the GDP in the United States in the last three quarters shows a clearly declining trend: 5.0%, 3.7% and 1.6%, respectively. Even though these rates have remained at positive values, their evolution throughout the last nine months evidences a worrisome growth deceleration in the world’s largest economy, which happens to be the epicenter of the global crisis. Politicians, scholars and market players interpret this drop in the economic activity and its future evolution from at least two different points of view. Knowing and comparing both positions is important if we are to draw some conclusions as to what might be the most likely scenario in the coming months.The most influential scholars (Nouriel Roubini and George Stigler, among others) share a pessimistic view on the economic future of the US, and agree that this process of decline in the GDP expansion rate is the anteroom to the “double dip” or “W”-shaped recession, and will continue until showing negative values, which will be indicating that the world’s largest economy has re-entered a recessive phase, the depth and length of which is not precisely known yet. As opposed to what happened three years ago, recession in the USA, if back, will impact upon a very fragile economy: 14 million unemployed people, extremely diminished consumer confidence, a shaky real estate market, and a reluctant, de-capitalized financial system. This situation, coupled with deflation, will bring about serious social and political consequences. We are already anticipating some sociopolitical trends in an unresolved crisis, which might worsen in a recession: anti-immigration reactions, the electorate shifting towards more conservative positions, preventing further taxation, generating xenophobic feelings.
Besides, should the US relapse into another recession, the same will spread through a dissimilar global economy: an exhausted Europe, a fragmenting euro zone, a recovering Germany, and a rest of the world that is swimming in the sea of uncertainty: China shows incipient signs of growth slowdown resulting from a self-imposed credit crunch aimed at neutralizing inflationary trends and deactivating a potential real estate bubble. Conversely, Latin America and some Asian countries have sound, expanding economies. In sum, a weaker global economy, with very severe economic, social and political deterioration at the centre of the system, and emerging economies, which have been favored, driven by the Chinese economy, by very low interest rates as well as by flights, and subsequent inflows, of capital and investment from central countries.
A second position –expressed by Ben Bernanke and shared by most market players, as it has reflected quite clearly on the evolution of the Wall Street stock exchange indexes– bases its optimistic view on the economic cycle rationale: the negative factors have behaved as expected in any recovery cycle. After a strong restocking and import growth, at a second stage such variables decelerate until they reach a relative stabilization. In addition, for the purposes of this analysis, it is vitally important to note that consumption, though still weak, shows signs of growth. According to the advocates of this position, the rationale of post-recovery growth cycles in relation to inventories and imports, in addition to a positive consumption dynamics, leads to expecting a very low chance, at least so far, of falling into double-dip recession. Two additional factors reinforce the above claims: corporate profits and the position adopted by the Fed.
As for benefits, and according to the national accounts published on Friday, August 27, 2010, corporate gains have grown in annual terms. On the other hand, that same Friday, the Fed’s Chairman Ben Bernanke, in his speech at the annual conference of central bankers in Jackson Hole, made clear the monetary institution’s position by stating, “I will also discuss some additional policy options” to “minimize the risk of a repetition of the devastating events of the past three years”. This implies that, if necessary, the monetary entity will use all the anti-cyclical monetary tools it still relies on. Roubini responds to Bernanke’s speech as follows: “the Fed is wrong by waiting for and supporting a recovery this year, it must begin to think about how to prevent a new recession.”
In sum: according to this more optimistic view, based on the rationale of post-recession cycle stages, in addition to the unwavering decision of the Fed to comply with its growth and stability mandate, it is possible to infer that the current recovery scenario might be gradually converging towards a sustained growth path with price stability. It this was the future scenario, the likelihood of falling into a double dip-type recession with deflation is low.
Based on a comparative analysis of the two antagonist positions in relation to the evolution of the US economy, we can infer some reflections:
-It is emotionally very strong to approach the empirical confirmation that the United States might fall into a new recession. We try to deny this yet the rationale of the reasoning and the empirical evidence, derived from the analysis of the GDP components’ behaviour during the last months, make us hesitate and consider that Roubini may probably be right again and that the recession may have a W shape or that Stigler did not exaggerate with his title Free Fall.
– The most optimistic perspective has been downplayed by the strength of facts. Bernanke, in his last appearance before the Senate admitted that the “US´s economic outlook remains unusually uncertain”, and that the country has a gradual, long period of recovery ahead. He warned about the fragility of the housing market (one out of seven home owners has been foreclosed) and the fact that most unemployed people have been unable to find a job for more than six months. He also warned about the dangers of long-term unemployment, and admitted that it will take many years to restore the 8 million jobs destroyed by the crisis. Needless to say, this view does not contemplate the possibility of another recession; yet, the optimism that prevailed in early 2010 has diluted. In addition, the crisis of the European sovereign debt has impacted, less on the economic side, but more on expectations.
– The most optimistic perspective has been downplayed by the strength of facts. Bernanke, in his last appearance before the Senate admitted that the “US´s economic outlook remains unusually uncertain”, and that the country has a gradual, long period of recovery ahead. He warned about the fragility of the housing market (one out of seven home owners has been foreclosed) and the fact that most unemployed people have been unable to find a job for more than six months. He also warned about the dangers of long-term unemployment, and admitted that it will take many years to restore the 8 million jobs destroyed by the crisis. Needless to say, this view does not contemplate the possibility of another recession; yet, the optimism that prevailed in early 2010 has diluted. In addition, the crisis of the European sovereign debt has impacted, less on the economic side, but more on expectations.
– By way of conclusion, both positions admit the existing deterioration and an uncertain future. The pessimistic perspective predicts the inevitability of a double-dip recession pattern, while the optimistic position relies on the cycle rationale and points to the recovery-bolstering effect that dubious economic incentives will generate. Both envisage a grey future; even the optimistic viewpoint anticipates low growth for this year, and probably for 2011, and has delayed forecasts for the beginning of a robust recovery period.
In order not to miss the transcendence and importance of this analysis, World Bank president Robert Zoellick reminds us that ever since the economic crisis started more than 60 million new poor have emerged worldwide. Let us imagine the social dimension a “double-dip” or a prolongation of the slowing down of growth may have.
