What is it about the Keynesian dominated international agencies?
The OECD thinks of itself as the acme of the global forecasting mafia. In 2011 its review of the US economy said, “Bouyed by substantial policy support and improving financial conditions the economic recovery is progressing.” It forecast growth of GDP at 2.6 per cent in 2010 and 2011 but growth fell to 1.8 per cent in 2011.
The 2014 report placed last year’s growth at 1.9 per cent and the forecasts are for 2.5 per cent this year and 3.5 per cent next year. Yet, GDP fell at an annual rate of 3 per cent in the first quarter of 2014
The language remains upbeat, “The US economy is recovering from the Great Recession and near-term prospects are favourable”; and “… the US economic recovery is regaining momentum”. Yet, the data shows this is the most sluggish recovery in history and employment levels remain below the previous ones after six years after the so-called trough.
The budget deficit remains at 4 per cent of GDP Housing is counted as a part of the recovery yet new starts are pretty flat over the past year and actually fell 6.5 per cent in May.
A bright spot is the energy sector. In spite of the Administration’s best endeavours, the shale gas boom over the past 6 years has brought this unconventional gas to comprise one third of gas production. But the driver for growth, non-residential business investment, having increased somewhat during the past couple of years on the back of lower energy prices and restrained wage levels, fell in the most recent quarter and remains three percentage points below the pre-recession share of GDP which was around 16 per cent.
The massive increase in government debt and money creation brings its own risks of an economic collapse but even without this the likelihood of the US economy resuming its pre 2008 growth path seems remote.