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By HaleStewart April 9, 2017 8:05 am
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International Economic Week in Review: The Global Productivity Slowdown Makes Headlines

     Christine Lagarde of the IMF gave a speech that discussed the global productivity slowdown.  She observed three main causes of this development:

One is population aging in most advanced economies. Research suggests that worker skills tend to increase until a certain age and then to decline—with negative effects on innovation and productivity, although this remains an issue still subject to debate. [3]

A second headwind is the slowdown in global trade. We know from well-established research that trade encourages firms to invest in new technologies and more efficient business practices. It also encourages the sharing of new technologies across borders. The lack of global demand and the gradual increase in trade restrictions have led to a slowdown in trade growth in recent years. This, in turn, has hurt the productivity and living standards of all citizens.

A third productivity headwind is the unresolved legacy of the global financial crisis in some major economies.    

Tim Taylor at the Conversable Economist Blog digs a bit deeper into the data. More and more, we’re hearing about the global productivity slowdown.  Although no one has identified a central way to alleviate its causes, the fact that it’s getting out attention is a good thing.

     EU news continues to be positive, starting with the Markit reports.  The composite reading was 56.4, a 71 month high.  And the 56 service level was a 70 month high.  Manufacturing is also setting records: it was 56.2, a nearly 6-year high.  Rising price pressures were the only negative in any of the reports.  As for why this is happening, there are two general explanations.  First, the ECBs interest rate program is clearly bearing results.  Loan volume has been steadily picking up over the last few years, with loan growth now around 2%.  Second, the euro is near a 5-year low relative to the dollar:

This is stimulating export orders.  In other news, the unemployment rate continues ticking lower, falling .1% to 9.5%.  And retail sales rose .7% M/M and 1.8% Y/Y, continuing their strong, upward advance.

     Canadian news was mixed.  On the plus side, the Bank of Canada released their latest quarterly business survey, which reported increasing bullishness.  A majority of firms are expecting increased sales while also planning for slightly higher investments.  Exports are projected to increase thanks to the lower Canadian dollar:

On the negative side, the unemployment rate ticked .1% higher to 6.7%.  However, the unemployment rate is a lagging indicator, so this shouldn’t be too surprising. 

     Australia maintained their current interest rate policy this week, offering the following analysis of the Australian economy:

The Australian economy is continuing its transition following the end of the mining investment boom. Recent data are consistent with ongoing moderate growth. Most measures of business confidence are at, or above, average and non-mining business investment has risen over the past year. At the same time, some indicators of conditions in the labour market have softened recently. In particular, the unemployment rate has moved a little higher and employment growth is modest. The various forward-looking indicators still point to continued growth in employment over the period ahead. Wage growth remains slow.

Thanks to its trade relationship with China, Australia has enjoyed nearly 2 decades of solid economic growth.  Their recent GDP data place this statement into nearer term context:

While the unemployment rate recently ticked a bit higher to 5.9%, this is hardly fatal.  While slightly elevated, it’s still at an economically reasonable level:

 And given increasing price pressures, a slightly higher rate of joblessness may slightly decrease inflationary pressures, giving the RBA more policy leeway.  Overall, the down-under economy is doing just fine.

     The only major news from the UK was the Markit releases, which continue to deft predictions of post-Brexit collapse.  The manufacturing number decreased .2 to 54.2.  Foreign demand remains strong.  The service sector rebounded 1.7 point to 55.  Both economic sectors benefitted from the weak Sterling, which is near 5-year lows versus the dollar and euro.  Finally, overall production for February declined .7%.  Like the recent US industrial production number, a sharp shortfall in utility output was the primary reason.

     Overall, global news continues to be more bullish than that reported in 4Q16.  The best news comes from the Markit reports and their improved readings for new orders.  Something is happening underneath the surface to encourage this improved position.  In addition, the EU continues to gain ground at an increasing pace while Canada is still moving away from recession and towards growth.  And Australia's rebalancing continues apace.  Overall, the global economic picture is getting better.

Hale Stewart is a tax lawyer in Houston, Texas with the Law Office of Hale Stewart, where he specializes in domestic and international tax structures and asset protection.  He is also a financial adviser with Thompson Creek Wealth Advisers.    


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