Over the last couple of months, world growth has started to re-accelerate. In Europe (about 20% of the world’s economy) growth has started to recover after the European Central Bank (ECB) stepped up its program on monetary stimulus by buying more government bonds (called “quantitative easing” or QE). In the US (25% of the world economy), a mini-slump caused by very cold weather in the eastern US in the first quarter of the year has ended, and the economy has picked up.
Yesterday, in a nationwide referendum, the Greek people voted by over 60% to turn down the terms of the most recent offer of restructuring by the so-called “Troika” – the European Union (EU) , the European Central Bank (ECB) and the International Monetary Fund (IMF). This has thrown the markets into a tizzy, but what does it really mean?
The March GDP figures released on Wednesday showed that growth in the first quarter of this year was 0.9% in real terms. Of that, 0.6% came from the rise in export volumes, which increased 5% in the quarter. This was unexpectedly large, and in fact over the year (“year-on-year”), which is a smoother change, the increase was just 8.1%, a rate of growth in exports roughly where it’s been for the last few years.
There was a sense of relief that the Federal budget, handed down a week ago, wasn’t anywhere near as punitive as the 2014 budget. However, though it is important, the impact of the budget can be outweighed by other factors. The two biggest negatives over the next couple of years are the fall in mining fixed investment and the weakness in commodity prices.
Recent data from China covering the first quarter of 2015 confirm that Chinese growth is as low as it was during the GFC, when the entire world economy (with the notable exception of Australia) plunged into the deepest recession since the Great Depression in 1930-1933. This time however, world growth, though a little weaker than it has been, is still positive.