Three years after the Great Recession, the global economy is still struggling. Hart Energy had forecast trend-line growth to be roughly 4% (real) per annum. While 2010 delivered real growth of 4.5%, the above trend-line growth was achieved because of a low base owing to the contraction in 2009 and extraordinary fiscal and monetary stimuli that followed the steep decline in global output. The past two years of below-trend line growth can be considered as payback for the outsized growth in 2010. Simply put, fiscal stimulus is off the table in most advanced countries because of debt overhang in advanced economies and slower-than-expected job creation hasn’t provided a base of government revenue growth to restock coffers or pay down debt.
Looking forward, the worst may not be behind us. In 2011, several economists were calling for a double-dip global recession. Hart Energy disagreed with this scenario and most economists have taken it off the table for 2013. While the projection of positive 2012 growth is in the bag, Hart Energy undershot the target and has had to reduce 2013 and 2014 gross domestic product (GDP) projections. Specifically, the projections did not call for a third round of quantitative easing (QE3) to be carried out by Ben Bernanke, chairman of the U.S. Federal Reserve (the Fed). Yet the Fed launched an open-ended US$40 billion loan-purchasing program on Sept. 13, 2012. Although the GDP growth forecast foresaw lower growth in Europe, the debt crisis reduced output greater than expected and will continue to impact economic activity into 2013 and 2014. China’s slower growth, as the Hart Energy forecast indicated, was what the authorities wanted to help reduce inflation and prevent a bursting of a residential property bubble. Where the analysis lacked was the longer-term impact of tweaking China’s political economy, emphasizing domestic growth and moving away from its export-growth economy that the Asian giant had followed for decades.