End of the world is nigh

We are now struggling with the problem that growth since the last Great Recession has remained anemic and aided by austerity has resulted in more recession in Europe.

At issue is the expectation of GDP growth rates that we experienced in the last 15 years or on a longer term for over 50 years will continue. What we are forgetting is that the technological revolution combined with globalisation has created a shift in growth and a change in consumption patterns caused by ecological concerns as well as by the lack of confidence of what the future holds.

The post oil crisis of 1973 caused world GDP to drop from 4.6% in 1973 to less than 2% for the next 10 years, bar three years with just over 2%. Between 1986 and 1995 growth only breached 2% three times again. The following 10 years again only saw the 2% breached three times. What is this telling us? The generally accepted definition of a world recession is that GDP drops below 2% for two quarters or more. Ergo, seven years out of ten we are in a mess.

This relatively poor economic performance has been hidden by globalisation and the strong growth in trade as the supply sources shifted to Asia. Trade as a percentage of GDP, on a global level was measured at 24%in 1960 and grew slowly to 40% by 1994. Then came the impact of the shift in production and the ratio shot up to nearly 60%.

So the final question is how long can consumption continue to drive trade upwards when the home economy is a relative bust? The answer is, not for long, therefore the concept of the world as we know it is changing.