"Kee" Points with Jim Kee, Ph.D.

Slower global growth seems to be the main theme of recent business headlines, and I think it is helpful here to point out that while contemporary news (and information) flow is nearly instantaneous, perspective isn’t necessarily as forthcoming. That’s particularly true of global growth. For example, back in 2006 UCLA economist Arnold Harberger (then at age 82), described the half-century from 1950 to 2000 as the greatest in history in terms of the welfare of the world’s population. He furthermore stated that the “the quarter century from 1975 to 2000 has no problem in claiming the championship as the best ever.”  Harberger is probably the world’s most respected (by the economics profession) “development” economist, largely because of his real world experience advising many governments (mostly in Latin America). “Few people,” wrote Harberger, “even among the normally well informed, are aware of how outstanding the world’s recent economic performance has been.” And what was it that was so outstanding to Harberger? It was global GDP growth rates averaging 2.8% per year, and GDP per capita (per person) growth rates of 1.2% per year.

That’s worth keeping in mind when you see headlines like the IMF’s recent downgrade of its global real (inflation adjusted) GDP growth rate estimate for 2012 to 3.5%. What has happened is that an anomalous surge in global growth from 2003-2007 to near 5% levels, driven largely by emerging markets in general and China in particular, has distorted many people’s view of what normal growth should look like. The period of growth between 2003 and 2007 should be seen as an exception, not the norm. And here’s where a few numbers are helpful: The average real GDP growth rate for emerging markets from 1960 to 2010 (50 years) was 4.8% per year. But from 2003-2007 that increased to 7.6% per year. Forecasts for emerging markets going forward tend to average around 5% per year (Morgan Stanley). So the emerging market story isn’t going away, and growth in those markets should continue as they gain a share of total global GDP, but don’t expect the 2003-2007 growth rates to be the norm, but rather something slower (but still strong), like 5%. I think that’s the right way to think about it.

As for growth here in the U.S., the phrase “holding pattern” comes to mind. With Congressman Paul Ryan selected as Governor Mitt Romney’s running mate for the 2012 Presidential election, the contrast in visions of the two campaigns should be clearer. Since both sides have plenty of adherents, I’d say we are probably entering into a final period of “wait-and-see” among market participants. That’s because a lot of tax and regulatory issues will take different directions based upon the election outcome. I think that also translates into low near-term growth numbers in the U.S. However, businesses exist to make a profit, and they can’t put capital spending and hiring decisions on hold forever, so I’m hoping for some clarity either way within a few months, with very low expectations with respect to the economic data in the interim.