Carry On Consuming

Last week 2,833 delegates from across China met in Beijing for the annual National People's Congress. Less than a mile away a smaller gathering took place, as Deloitte economists from around the world met for Deloitte's Global Economics Forum.

One of the messages to come out of the Deloitte Forum is that manufacturing, exports and investment are under pressure across the world.

The hard numbers bear this out. Manufacturing activity is shrinking in the US and China, the world's two largest economies. Output is still rising in the euro area, but at the slowest pace in a year. Britain's manufacturing sector is back in recession.

Part of the problem is lacklustre global demand for manufactured products, particularly in emerging market economies. This has contributed to a slowdown in trade, one of the pre-crisis drivers of global growth. The value of global goods exports last year fell by 13.8% in dollar terms, the first contraction since 2009. You get a sense of how tough things are that the Baltic Freight Dry Index - a benchmark measure of the cost of shipping goods - is at all-time lows. America's exporters, faced with a sharp appreciation of the dollar, have faced particular problems.

Add in rising macroeconomic uncertainty and tougher financial conditions, it is not surprising that corporates have become more wary of raising investment spending. The capex slowdown has been exacerbated by collapsing investment in commodity-related sectors, especially in the US, where energy and mining have accounted for roughly half of all non-financial investment in recent years.

In the case of China what came over during my visit was the scale of the excess capacity in the industrial sector. In recent years a boom in investment spending, fueled by cheap and easy money, has created new capacity for which there is simply no conceivable demand. The Chinese government has targeted the elimination of excess capacity as a key priority for this year - and last week announced plans to lay off 1.8 million workers in the coal and steel sector. The glory days of China's investment boom are well and truly over.

And yet for me the big conclusion from last week's meeting in Beijing was that, despite the storm clouds, the world economy should keep growing this year. None of my colleagues, in the US, China, India, Europe, Japan or Australia, anticipate a sharp slowdown in GDP growth in their region this year. All expect consumer spending, the dominant element in GDP...

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