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How to Break Out of Stagnation

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Tuesday, July 9, 2013, 1:04 PM
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Executive Summary

  • The world's ongoing net energy recession will continue to drag GDP downwards unless a technology mircale occurs (unlikely)
  • Reversing our net energy decline will be key to breaking out of this stagnation
  • Solar capacity build-out is an important growing trend, as it offers "free" streams of future energy after its up-front costs
  • Solar GW capacity is now growing at a classic exponential rate. The countries that invest the most here will have a long-term advantage over those that don't
  • Stimulative programs that invest in renewable energy infrastructure are looking increasingly attractive to our current fiscal ones that are clearly failing to return us to previous levels of growth

If you have not yet read Part I: The Dead Weight of Sluggish Global Growth available free to all readers, please click here to read it first.

With OECD countries in an ongoing energy recession, and given that just about all major economies, both in the OECD and Non-OECD, depend on exports, the risk is that global trade and global GDP also start to slow down. In 2013, we see that is exactly what's starting to happen, as noted by the Economist:

According to The Economist's calculations, world GDP grew by just 2.1% during the first quarter of 2013 compared with a year earlier. Just 12 months ago, output was growing at a reasonable clip of 3.1%. The European Union, the world's second-largest economy, which welcomes its 28th member on July 1st, is back in recession. Meanwhile there are concerns about stumbling blocks as China seeks to rebalance toward a more consumption-oriented economy and more moderate growth rates. Long the mainstay of the world's fortunes, China alone has been responsible for nearly half of all world economic growth since the end of 2009 when the world began growing again.

While commodities from copper to oil have retained the majority of their price gains achieved over the past ten years, the fact remains that year-over-year inflation has settled in at a low, tepid level. Meanwhile, global wage deflation, a secular trend over the past decade, continues. Overall, this means that labor still has very little pricing power. Indeed, with structural unemployment now embedded in much of the OECD, the question remains: How will Western economies put enough people back to work to erase the idle labor pool?

 

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