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January 9, 2019 | Highly Coupled Global Growth Engines Slowing All Together

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel ( Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog:

As shown below, just released German industrial activity fell for a third month in November 2018 and raised the risk that Europe’s largest economy is slipping into recession. See: Trade hopes trump dismal German data for European equities.

At the same time, the Chinese economy–the world’s second largest and another important barometer of global demand–is also weak. China’s industrial output in November grew 5.4% from a year ago — the slowest pace since January to February 2016.  See:  China just reported ‘ugly’ economic data.

While China’s officially reported GDP growth rate was 6.5% in the third quarter of 2018, this was the slowest since February 2009 during the last global recession.

Other on the ground indicators, like consumption tax revenue fell 71% in November (beside in red) and passenger-car sales (in yellow), fell for a 5th straight month, as disposal income per capita (green) has flat-lined and the off-balance sheet debt of local governments and corporations has soared.  See:  Chinese retail apocalypse now?


Similarly in North America, even with record employment levels (at cycle highs) and still historically low-interest rates, consumer spending has weakened, with home and auto sales declining since 2017.  See: More people are going broke in Canada, as interest rates rise and  Housing Market is canary in interest-rate coal mine.

There is one common theme connecting all of these countries and trends:  years of ultra-low interest-rates and flat wages among the masses, enabled by the same reckless central bank/government/corporate policies have rendered a highly interconnected financial fate dependent on the impossible presumption of perpetually low rates, rising debt and rising corporate profit margins, ad infinitum.

This was always impossible even as it managed to continue far past rational expectations.  But now, debt-financed spending that rose everywhere all together is also falling everywhere all together.  Denial is dangerous; no one should be surprised.

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January 9th, 2019

Posted In: Juggling Dynamite

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