Good week.

May 04 -10, 2024

Big news. It may sound strange, but there was no unexpected news this week. What is called a very ordinary week. Of course, this does not concern Russia, where there was the inauguration of the President, and the parade on Victory Day, and the confirmation of the new and old head of government. But this news is neither economic nor macroeconomic.

And there was amazing economic silence in the world. There were also political news (for example, Israel began the next stage of the operation in the Gaza Strip, directly violating the US ban), but they have not yet affected the economy. The only economic news is the signing of a free trade agreement between Serbia and China, since this agreement effectively closes the possibility for Serbia to join the EU. And a sharp increase in duties on the import of Chinese electric vehicles into the United States. Actually, the WTO has already practically died, but additional confirmation will not hurt.

Overall, last week was absolutely normal. And it is especially interesting to look at what, in fact, is the norm today. The picture we get is, frankly, depressing…

Macroeconomics. Industrial production in Argentina -21.2% per year, excluding covid, this is a 22-year low:

In Saudi Arabia -8.7% per year, 11th monthly minus in a row:

In Italy -3.5% per year, the 14th minus in a row:

Industrial sales in Italy -1.9% per year, 11th negative in a row:

Manufacturing output in the Netherlands is -6.0% per year, excluding Covid, this is the bottom since 2009:

In South Africa -6.4% per year, 2-year minimum:

Industrial orders in Germany -0.4% per month, 3rd minus in a row and -4.3% per quarter:

Industrial production in Germany -3.3% per year, 10th monthly minus in a row:

Output in the Swedish construction sector -6.9% per year, 14th negative in a row; Overall, over the past six months, the annual dynamics are the worst since 2009:

The mortgage rate in Britain has been 7.92% for 5 months in a row, only 0.1% from its 25-year peak:

The balance of house prices in Britain has been in the red for 19 months in a row:

Prices for used cars in the US -14.0% per year, one of the worst values in the history of this indicator:

Economic optimism in the US is the worst in 5 months:

US consumers are the most pessimistic in six months:

Because their inflation expectations are the highest over the same period (+3.5% per year):

It is immediately clear that the citizens surveyed did not read either our reviews or the speeches of Summers, whom we wrote about in one of the previous reviews: https://fondmx.pro/en/weekly-wrap/dog-eat-dog/

Weekly initial jobless claims in the US are at their highest in six months:

Monitor of British retail -4.4% per year, over 30 years of data collection it was worse only three times (in 1999, 2005 and 2019):

Household spending in Japan -1.2% per year, 13th negative in a row:

Japan Economic Observers Index is at its lowest in 20 months:

Sweden’s central bank cut rates by 0.25% to 3.75% as inflation falls and the economy is weak. The Central Bank of Brazil reduced the base interest rate for the 7th time in a row – by 0.25% to 10.50%.

The Australian Central Bank has left rates unchanged until it sees reasons to reduce them. The Bank of England also did not change anything, but 2 out of 9 board members already voted for reducing rates. At the Central Bank of Mexico, everything is also the same.

Main conclusions. If this is not an acute crisis, what is a crisis then? And, it is worth recalling that all these data are given in a situation of frankly underestimated inflation. Let’s imagine that Summers’ estimates are correct (and they are also underestimated!). Then the decline in some indicators becomes even double-digit, if we assume that the main developed countries are doing about the same as in the United States.

And here we need to make an important note. As we have noted more than once, the current crisis is not cyclical, but a crisis of falling capital efficiency (see Mikhail Khazin, “Crisis of capital effectiveness: An idea is useless if it can’t be used to solve a task”). Accordingly, the decline occurs according to a structural mechanism, which is characterized by a long duration (in 1930-32, a similar crisis lasted almost 3 years; now, since structural imbalances are higher, it will be deeper and longer) and, most importantly, an almost constant rate of decline.

If we take into account the role of the state in maintaining the economy, which today is much higher than 90 years ago, the monthly rate of decline is not 1% of GDP, but approximately 0.5-0.6%. That is, on an annual scale, then it was about 10%, and today it is about 6-7%. Since the total scale of the recession should be approximately 55-60% of GDP for the United States, the crisis will last 8-10 years. Of which 2.5 years have already passed (since autumn 2021).

Note that at some point the crisis may locally accelerate sharply. Since today it follows an inflationary scenario, there has not yet been a collapse of financial markets (90 years ago, the collapse of financial markets in October 1929 preceded the onset of a structural crisis in March-April 1930). But as real GDP falls and monetary policy easing (which has already begun, see previous review: https://fondmx.pro/en/weekly-wrap/only-soft-decisions/) this collapse is almost inevitable.

Therefore, the overall economic picture looks bleak. For everyone except our readers. Because great fortunes are made not on growth, but on decline. And our readers, unlike everyone else, understand perfectly what to expect in the future! So we wish them an easy and pleasant weekend and an effective work week!