It has been six years since the global economy and U.S. entered the worst recession since the Great Depression. While many are championing the economic recovery, on closer inspection, it looks like history might repeat itself sooner rather than later.
U.S. Economy Grows at Slowest Pace Since WWII
The rate of growth in the U.S has been dismal since the 2008 housing bubble and financial crisis topped the country into the worst financial disaster since the Great Depression.
For example, before the Great Recession, the biggest economy in the world reported annual gross domestic product (GDP) growth of 3.8% in 2004, 3.3% in 2005, and 2.7% in 2006. Then the ripples of the Great Recession began to make themselves felt. In 2007, the U.S. reported a GDP of 1.8%, followed by -0.3% in 2008 and -2.8% in 2009. (Source: Worldbank.org, last accessed May 14, 2015.)
Between the devastating recovery years of 2009 and 2012, the cumulative rate of GDP growth was nearly nine percent below the average growth rate for previous recoveries. (Source: Congressional Budget Office, last accessed, May 14, 2015.)
The so-called recovery has been pretty uneventful. In 2013, the U.S. reported annual GDP growth of 2.2%; last year it was just 2.3%. In the first quarter of 2015, GDP came in at a dismal 0.2%.
As it stands, weak recovery, massive budget deficits, and high debt level could push the fragile U.S. economy into another recession.
China Economy Slowing Down
China, the world’s second-largest economy, is also losing steam. Since 2010, the country’s GDP has been steadily declining from 10.6% to 7.4% in 2014. Not surprisingly, China’s money supply grew and investment growth sank to the slowest pace in over 15 years. (Source: Reuters, May 13, 2015.)
The future remains bleak. For 2015, China’s economy is forecast to climb at around seven percent; its slowest pace in 25 years and well below historical averages. The People’s Bank of China (PBOC) has lowered its benchmark interest rate for the third time in six months. By lowering interest rates, the central bank is hoping to make borrowing cheaper and stimulate economic growth.
Greek Debt Crisis Can Drive Eurozone Back into Recession
After six years, Greece emerged from a recession in 2014. But that was short-lived; falling business confidence, national debt, and deflation have driven Greece back into a recession.
To make matters worse, Greece’s government has not been able to cut a deal with the International Monetary Fund (IMF) to ease its debt crisis. Greece’s finance minister insisted on Thursday that he will reject any deal from international bailout creditors that does not help the country exit its economic crisis. (Source: abcnews.com May 14, 2015.)
All told, I think that the signs of deteriorating economic conditions are set to emerge in late 2015 or early 2016. With this, don’t expect stock markets to perform the way they have been for some time.