We all know how bad things are due to COVID-19. The global economy was shut down and supply chains completely interrupted.
While many jumped upon this idea, the reality is that things were awful before COVID-19. Hence, to blame the economic struggles on COVID are misguided. We know that severely affected things. However, it was just piling on top of an already declining situation.
Until people realize the structural problems that exist, most will simply be ignoring the reality of what is taking place.
Recovery Not Expansion
We hear a lot about how the economy is on fire. Compared to the numbers a year ago, things look remarkably better. Of course, the challenge is most of them are YoY (year over year) numbers. In other words, it is a comparison.
The numbers since the economic drop last year have improved. However, to expect an ongoing expansion is something that does not reflect what was taking place before COVID.
Ergo, we are witnessing an economic recovery as compared to an expansion. We are seeing a bounce back from the lows yet there is no evidence that this is going to be ongoing.
In fact, evidence is that we are more likely to resume the previous trend as opposed to this being a trend reversal. Hence, what is being espoused by politicians, the media, and others is likely to be shown to be false.
Global GDP Growth
There is no way to sugarcoat it: global GDP growth stinks and it has for a long time.
Here is a chart from World Bank showing the growth rates over the last few decades.
Absent the Great Recession, 2019 was the worst year of global growth since 2002. We can also see from the chart the trend since the recovery in 2011, a downward progression throughout the decade. This is not how it was supposed to be.
Hence we know that global growth was slowing for more than a decade and not likely to improve anytime soon.
Bad News On The Horizon
Many do not learn from history. We can see from the above chart that this will likely mirror the Great Recession. Notice how it bottom and bounced up. Then we had two years which reversed the bounced and kicked off the overall downward trend for the decade.
The rebound in 2010 of 4.31 was the high for the decade. Sadly, this was by a wide margin. The next closest print was 2017 of 3.28, more than 25% less the recovery year of 2010.
What does this mean for our present situation?
Quite simply, 2021 is likely going to be the highest growth rate we see for some time. It is not uncommon for high GDP levels to be seen appear after major economic pullbacks. However, a recovery is not an expansion.
Even the Federal Reserve sees things are going into decline.
The yearly projects for US GDP growth rates are:
- 2021 7.05%
- 2022 3.30%
- 2023 2.25%
In other words, we will see two years of rebound before a growth rate below the 2019 level. Granted these are forecasts and reality could turn out to be different. Of course, we could see these numbers come in worse than expected. We also have a situation where this is the US GDP yet if the largest economy is sub the 2019 global level, it is likely the rest follows suit.
The present mania about the economy and inflation is going to be short-lived. While the Fed says the later is transitory, what they are omitting is that the economic growth we are seeing fits into the same category.
As we see, this is nothing new. It is something that took place for most of the last decade. We are now dealing with an economic environment where the structural issues are causing more money to be locked into the financial system. This does not help the economy. While it will send asset prices higher but that is all.
A year from now, the rhetoric of today will be long gone. Perhaps by that time people will realize we are in a deflationary super cycle as well as tightening economic conditions.
Either way, do not expect economic expansion to take place. The recovery will show a good number this year and then fade.
The global economy was dying before COVID-19.
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