Year End Global Economic Report – Running Out of Runway (PART 3 - Europe & India) (#18)

Part 3 continued...


In our view, Europe is in deep economic and political trouble at this time. Many of its members are teetering on the edge of economic depression and political instability, threatening the very sustainability of the Union. Its two strongest economies, Germany and France are now also starting to lose ground (France slowed to 0.1% and Germany from 0.7% to 0.3%. in the third quarter of 2013). We are showing Germany’s GDP growth Chart first because it was the engine are showing Germany’s GDP growth Chart first (CHART XXVI), because it was the engine that was almost single-handedly pulling Europe. Now it is practically at 0.0% growth which pushes the entire Eurozone deeper under water, which is basically where it’s been.


The Chart below (CHART XXVII) shows Eurozone’s GDP diving deeper, with an optimistic 2014.



It hurts to look at Europe’s unemployment rates. Notice Euro Youth rate at almost 25%! And Spain and Greece Youth unemployment rate almost at 55%!!



By any sensible measure Europe is in a depression. Definition of 'Depression': A severe and prolonged downturn in economic activity. In economics, a depression is commonly defined as an extreme recession that lasts two or more years. A depression is characterized by economic factors such as substantial increases in unemployment, a drop in available credit, diminishing output, bankruptcies and sovereign debt defaults, reduced trade and commerce, and sustained volatility in currency values. In times of depression, consumer confidence and investments decrease, causing the economy to shut down (Well, almost all of it applies to Europe).


​The story of India is no different than all the other major economies today. Economic growth (GDP) has been steadily declining and is now at approximately 4.4% (less than half of its 2010 peak). Rampant corruption leading to years of a severely handicapped Government, stalled key reforms, poor infrastructure, dramatically reduced Foreign Direct Investment, and lately a currency in free fall, all of this and more have led to India’s current bleak outlook. The Charts below illustrate the problems.


Recurring and persistently high inflation, particularly in foods and energy, is causing the Government of India serious problems, and forcing it to keep interest rates high at a time of slowing GDP growth, thereby further exacerbating the problem.


The ruling coalition led by the Congress Party, is facing its general election, early next year (2014). Which means that the Government’s populist policies, that result in tremendous waste and inefficiencies, are going to continue, and therefore by default the troublesome Current Account deficit is not going to be meaningfully curtailed any time soon. Handicapped by its weak political position, fractious politics, resource and energy sapping corrupt bureaucracy, highly inefficient public sector corporations and institutions and a socialist vote buying bent, India’s Government lurches from crisis to crisis, wasting the Country’s potential, its talent and its advantageous demography. The following Charts highlight some of its present day primary problems.



India’s exports have been falling in relation to its imports.


India’s exports are down dramatically to all regions, and with most trading partners.

The deteriorating economic outlook coupled with the general flight of Foreign Institutional Investment out of emerging markets back to the United States, triggered a freefall of the Indian Rupee to its lowest level against the U.S. dollar. The Reserve Bank of India had to intervene very aggressively to slow and reverse the trend.


India, burdened with a messy democracy that is increasingly dysfunctional, in terms of good clean effective governance, is heading into a general election next year. The consensus is that the elections will result in an even more fractured coalition government led by the incumbent Congress Party. While India’s economic potential is tremendous, it’s extremely inefficient governance at all levels, is going to continue to make it perform well below its potential in the coming years. Although, it’s well developed internal demand will give it greater stability, at a lower output, than most countries, particularly China.

In conclusion, our view is, the global economies are in deep trouble and we expect it all to get worse before it gets better. There are simply too many financial, structural, economic, and possibly political, ticking time bombs, in too many countries, for us to feel that recovery and stability are imminent. In fact we feel the opposite.

Collectively the dropping growth rates of the global economies are, in our opinion, too much of a burden for the Central Banks to be able to support indefinitely. So as we said earlier, ‘something’s gotta to give’ sooner than later. Therefore our prognosis going forward is: an under-performing and deeply troubled global economy that faces impending threats of a severe correction in the unsustainable American financial markets, a possible collapsing Eurozone, and a dangerously inflated credit and real estate bubble in China. We anticipate greater deflationary pressures Worldwide as economic growth slows further in the near term, and therefore we expect the Central Banks to continue their expansionist policies of ultra low interest rates and uber-stimulus. We maintain that the good done by the Central Bank’s intervention post 2008 crash has been extended way beyond any reasonable requirement, and is now stoking dangerous asset bubbles, and ironically, creating a similar leveraged environment that led to the 2008 crash. This time, there is a worldwide tsunami of government debt building that threatens global financial and economic stability, and sustainable growth. We advise extreme caution going forward, until the other shoe drops.

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