When the global economy crashed in early 2009, central banks 1) sprang into action; or 2) went totally bonkers, depending on your point of view. It appears that we have reached the end of the "new normal" phase in global civilization's "progression" toward ... we don't know what—as least in the short- to mid-term. Is it the end of life as we know it? Certainly not. Is it the beginning of a global renaissance? Certainly not. Whatever it is, it isn't going to be pretty.
There's way too much worrisome stuff going on in global economies and markets for me to sum it all up, let alone tell you the meaning of it all. But the time has come to warn you that there are dark clouds on the horizon.
Here are some recent articles to look at, with short quotes and perhaps a comment from yours truly.
1. When the Ben and Bejing party comes to an end (Reuters)
Through the dark days of the financial crisis, and the grey days of the halting recovery that have followed, investors have always been able to count on backing from two sources - Ben Bernanke and Beijing.
They have provided stimulus, mainly by pumping funds into the U.S. and Chinese economies in various ways, when other pillars of support had become unreliable.
That helps to explain why global financial markets took such a beating last week when both signaled that they are getting tired of being leant on so heavily...
In short, the monetary stimulus party is over, or soon will be, or the end is in sight.
2. The worst is yet to come for emerging markets (Financial Post)
Everywhere investors look, the emerging market story appears to be unravelling...
Massive amounts of foreign money are being pulled out of emerging market funds. Outflows have hit their highest level in two years, with data from EPFR Global showing more than US$19-billion left between May 22 and June 12 — a pace that hasn’t been seen since the height of the European sovereign debt crisis in 2011. It also takes a big chunk out of the roughly US$31-billion brought in during the first quarter of this year.
The stampede to the exits started last month when the U.S. Federal Reserve first hinted it would scale down its US$85-billion a month asset-buying program...
Now that the source of that cash is about to be cut off, emerging markets are set to face a reckoning that could damage their economies and drag out the recent sell-off in assets.
“From a structural perspective, something deeper is developing in certain emerging markets,” said Pierre Lapointe, head of global strategy and research at Pavilion Corp. “Structural problems are now being revealed by the impending tapering of quantitative easing and the medium-term trend in these markets has changed for the worse.”
Countries that have current account deficits face the biggest risk, with Turkey being a prime example of such a country. It averaged eye-popping economic growth of 9% from 2010 to 2011, but last year that growth slowed sharply to 2.2% as the inflow of foreign money began drying up. Turkey imports more than it exports, and much of its previous economic growth was boosted by investors eager to sink their cash into a country that had a much more attractive growth profile than the moribund economies of the developed world.
Turkey is not the only "emerging market"—it is an OECD nation—taking a hit...
3. India records slowest growth in a decade (Financial Times, subscription required)
India’s economy grew at 5 per cent in the financial year to March, the slowest rate in a decade of rapid expansion, the Central Statistics Office said on Friday.
In the latest quarter that ended on March 31, gross domestic product grew 4.8 per cent year-on-year, in line with economists’ forecasts and only slightly above the 4.7 per growth rate recorded in the preceding three months.
Economists blame India’s relatively sluggish growth over the past year on a reluctance by foreign or domestic business to invest because of poor infrastructure for power and transport, uncertainties over taxation, bureaucratic delays and continued restrictions on foreign direct investment.
4. South African growth weakens to slowest since 2009 (Financial Times)
Gross domestic product grew by 0.9 per cent on a quarter-on-quarter basis, down from 2.1 per cent in the last quarter of 2012 and significantly below the consensus forecast of 1.6 per cent, data released by Statistics South Africa showed on Tuesday.
5. Indonesia trade deficit underlines commodity weakness (Financial Times)
Southeast Asia’s biggest economy recorded a trade deficit of $1.6bn, when most economists had been forecasting a small surplus, adding to concerns about the deteriorating current account position and the weakness in the rupiah.
With a large, young population, booming domestic market and plentiful natural resources, Indonesia has become one of the world’s hottest emerging markets over recent years.
However, investors have become more cautious over the past 12 months as economic growth has started to slow, the current account has fallen into a deficit and policy making has taken a protectionist turn ahead of elections next year.6. Brazil’s Economic Growth Disappoints for Fifth Quarter (Bloomberg)
Brazil's growth unexpectedly slowed in the first quarter, complicating government efforts to revive the economy as it battles inflation. Swap rates fell.
The economy expanded 0.55 percent in the January-March period, the national statistics agency said today in Rio de Janeiro. Gross domestic product increased less than the 0.9 percent median forecast of analysts polled by Bloomberg, the fifth straight quarter of slower-than-forecast growth. On an annualized basis, the expansion decelerated to 2.2 percent, down from 2.6 percent in the fourth quarter of 2012.
Investors are paring bets the central bank tonight will accelerate the pace of monetary tightening to rein in inflation near the 6.5 percent upper limit of its target range. President Dilma Rousseff’s government over the past year has lowered borrowing costs to a record low, cut taxes and slashed utility rates in a bid to stimulate growth -- so far to little avail.
“The growth deceleration shows that the economic recovery has not manifested itself,” Kathryn Rooney Vera, macroeconomic strategist at Bulltick Capital Markets LP, said by telephone from Miami today. “The plan of attack has not panned out.”
That should be more than enough to convince you that the "new normal" of the period 2009-2013 is not going to be with us much longer. Economic growth in the 34 OECD ("developed") economies stagnated during this period, but global growth was supported by the booming emerging economies. (See The Guardian's OECD Economic Outlook - get the data). Now the emerging economies are slowing dramatically, which will further stunt already weak "growth" in the OECD nations, including phony GDP prints in the United States.
The "new normal" was anything but normal, and so was the "normal" which preceded it. Anybody with a functioning brain could see that dumping boatloads of liquidity into global markets was going to end sooner rather than later. China is trying to manage its failing banking system even as I write this (video below).
What now? The prognosis for the global economy isnt' good, but look on the bright side—there will likely be a sharp decrease in the growth of global CO2 emissions as economic growth in the emerging economies grinds to a halt.