World Economic Forecast Pared Back

January 21, 2019

Monday, January 21, 2019The International Monetary Fund pared back its world economic growth forecasts for 2019 and 2020 due to sustained economic weakness in Europe and some emerging markets. They also said looming trade tensions and the longer-term ramifications of the U.S. government shutdown could further destabilize a slowing global economy.

“After two years of solid expansion, the world economy is growing more slowly than expected and risks are rising,” IMF Managing Director Christine Lagarde said.

In addition to other forces, IMF economists pointed to: (a) challenges to German auto manufacturers due to new fuel emission standards; (b) uncertainty in Italy where a newly elected coalition government has clashed with EU leadership over a budget proposal which would dangerously increase the Italian sovereign deficit, combined with limp domestic demand; and (c) the uncertainty of fallout from a less-than-smooth exit from the European Union by the U.K. a.k.a. ‘a no-deal Brexit’.

Fears of a global slowdown began to jinx financial markets in early November 2018 as investors began to worry about increasingly weak signs in China.

The ripple effect of Sino-U.S. trade frictions over the past year apparently has exacerbated the slowing of China’s official growth rate to its weakest level since 1990, attributed to a combination of diminishing domestic demand and damaging U.S. tariffs.

Each of these issues is important, and they generally share a common theme:  bad policy decisions made by incompetent and/or uninformed people, some of whom are voters; some private-sector executives; and some unconstrained elected officials.

On Day 30 of the 2018-19 U.S Shutdown:  It is becoming increasingly evident that this partial federal government shutdown is taking an increasingly negative short-term toll on consumer and business confidence, and by extension, the overall US economy.  The White House’s Council of Economic Advisors recently updated their estimate that the shutdown will reduce current economic growth by 0.13% for every week that it lasts.  Doesn’t sound like much, you say?

We can look back to the “Ted Cruz Green Eggs & Ham” shutdown of 2013 – a mere 16 days – to see estimates of negative economic impact:

  • $24 billion in lost domestic economic output;
  • $2.1 billion in non-productive government costs (primarily the cost of paying furloughed workers for hours they didn’t actually work);
  • $2.4 billion in lost travel spending (based on a combination of estimated reductions in business travel for federal contractors and federal employees, plus cancellations of discretionary travel by tourists);
  • $7.2 Million in lost revenue at National Parks (based on an average collection of $450,000 per day);
  • Most alarming? While we can estimate current economic effects, there really is no valid means to estimate long-term economic – and societal – effects of an extended shutdown.

The message?  Political decisions made by unqualified and/or inexperienced individuals can and do have long term negative consequences. A comprehensive system of checks and balances is a critical ingredient in the long-term viability of any institution. In the public sector, a key ingredient seems to be the involved and active participation by a well-educated and well-informed body of citizens who are able and willing to vote.

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