Why the Slow Economic Recovery?

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The Vagaries of Financial UncertaintyExactly why have industrial companies around the world been slow to recover? And why did everything look so promising … and then suddenly, seem to grind to a halt?

Perhaps some insight into this dilemma was provided by the IMF’s recent World Economic Outlook.

According to Oliver Blanchard (its chief economist), there are the dual influences of a slowdown in advanced Western economies; and the overall financial uncertainty.

During the GFC, companies allowed their inventories to run down. Then, with a hint of global recovery, those same companies began replacing their depleted inventory levels.

As you would expect, production climbed until those inventories had been restored. At which point, you saw production return to more normal levels — when wider business activity was expected to take over, from the various government stimulus packages, as it usually did during previous downturns.

But this simply hasn’t happen — especially in Europe, the UK and US. Therefore, the first part of the problem relates to there being virtually no transition from government stimulus, to private demand.

Furthermore, China has chosen to turn its focus away from these weakened northern economies, towards building its own domestic demand. This has effectively closed the major export market for the large US manufacturing sector — simply making the global problem even harder to solve.

Bottom Line: Fortunately for Australia, China still requires our natural resources in abundance — to underpin its massive domestic expansion plans, over the next decade.

And as I’ve stated in various articles over the past month or so, it won’t be too long before you’ll see the influence of this begin to flow through the rest of the Australian economy — including Commercial property.

 

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