Toward a New Great Recession
Written by Alfonso Elizondo
Created on Monday, August 29, 2016, 18:13
For most of the world economies that have oriented their growth outward, the most important thing is to have an adequate infrastructure. These infrastructure networks are the central element in the economic and territorial system of a country that enables transactions within a given economic-geographic space as well as abroad. Such networks are the nodular element in the economic structure of countries and their markets, as well as their articulation with the world economy.
According to the Global Competitiveness Report 2015-2016 produced by the last World Economic Forum, there are certain parameters for defining the quality of a country’s infrastructure. These include the existence and maintenance of a road and rail network, and the availability of sea and air connections, in addition to the quality and extent of its electrification system, Internet connections and mobile telephony.
According to this comparative study by the World Economic Forum, the Asian continent is in the lead and Hong Kong is the country with the best infrastructure in the world. In second place is Singapore and third is the Netherlands, the only European country among the top five globally, with fourth and fifth places going to the United Arab Emirates and Japan. Other powerful economies such as Germany, the United Kingdom and the United States occupy 7th, 9th and 11th places respectively.
In the case of Latin America, the highest placed country is Panama, ranked at number 40, then Chile at 42, Uruguay at 52 and Mexico at 59. Meanwhile El Salvador, Ecuador and Costa Rica are in positions 60, 67 and 71. Of the 140 countries surveyed by the Global Forum, Venezuela was at 119, just above Haiti which is placed 137 in the world, with Madagascar, Guinea and Chad at the bottom.
From another point of view, the most recent World Bank study shows that in 2015 and the first half of 2016 economies of emerging and developing markets decelerated for five consecutive years, while the developed nations recorded only a slight recovery, having been subject to three very critical situations: 1. The slowdown in economic activity in China which is moving away from investment in manufacturing and toward domestic consumption and services. 2. The decline in the prices of energy and raw materials and 3. The growing indebtedness of US monetary policy which is looking for an economic recovery at a time when most advanced economies continue to defy monetary policy.
The most recent indicators of activities in the service and manufacturing sectors of major world economies have slowed compared to 2014 and reflect extreme volatility in financial markets caused by uncertainty in monetary and fiscal policies in these economies.
In the particular case of the United States, manufacturing activity is slower due in part to the appreciation of the dollar in the past two years and to the fact that investment in power generation has been affected by low oil prices. However, at its meeting in March, the Fed decided to maintain the same interest rate, despite the recent rise in inflation.
In the meantime, in the Eurozone both investor and consumer confidence has waned in recent months. Inflation in the region returned to negative territory, partly because of the lack of confidence in the euro and partly because of the sudden appearance of Brexit that ended almost all trade into Europe.
Meanwhile, the indicators for China in the first months of 2016 confirm the moderation in service sector growth and less dynamism in industrial manufacturing activity. There has also been a slowdown in spending in retail sales and investment in real estate and manufacturing. And all this has given rise to strong deflationary pressures.
In Latin America, some indicators such as monthly frequency in retail sales and industrial production have remained unchanged for most countries as their economies are facing high volatility in financial markets, low commodity prices and slower growth in the global economy.
According to World Bank data, supported by the IMF, Bloomberg and JP Morgan, the countries with the highest inflation worldwide are: Venezuela with 180%, Sudan with 36.9%, Malawi 24.0%, Iran 17.2% and Ghana l5.0%. There are other countries that have not submitted official data to the World Bank but have recorded large increases in the prices of food and products, such as Ukraine, whose Central Bank recorded 52% inflation, and other countries like Argentina and Syria that are above 27%.
In the World Bank inflation report this April, the United States has an annual inflation of 1.125%, Germany, -0.093%, Brazil, 9.278%, Mexico 2.542%, Spain -1.055%, Canada 1.664%, China 2.679%, Japan 0.00% and India 5.512%.
Addendum: From both reports there are two basic conclusions: 1. The world economy has still been unable to grow over the past three decades since the discontinuation of the business of war planned in territories far away from the United States in order to sell weapons and charge for services provided by mercenary companies owned by Pentagon bosses, and since taxes were lowered for big business. 2. Nothing in the global financial model will change as long as the Chinese do not dare to displace the US dollar on the global market and to replace it with the yuan, in cash or in a virtual currency.
They still have not tried, but it won’t be long before it happens.