Source: The Great Recession Blog, by David Haggith
Headwinds that are starting to assail deep structural flaws in the US and global economies form the basis for my 2017 economic forecast, which looks like an all-out economic crisis building throughout the world. Some of these headwinds are global; some more locally focused within the United States, but that which brings down the US economy wounds the world anyway. Ultimately, global concerns threaten the US, and US concerns threaten the globe. We’re all in this together, even as we seem to be flying apart in political whirlwinds everywhere and fracturing national alliances all over the world.
Even in the US where the Trump Triumph has ignited consumer and business hopes and inflamed the stock market, time is not on Trump’s side. Trump’s own key advisors — like Steve Bannon and Larry Kudlow — have stated unequivocally that Trump’s plans must happen quickly if they are going to save the US economy. Trump, himself, campaigned on the endless refrain that the US economy was rapidly approaching catastrophe. If we take the architects of these hope-inspiring plans at their word, 2017 is a make-or-break year for the US, and the clock is ticking against their success.
Seven headwinds in my 2017 Economic Forecast that will batter the global economy
(In no particular order of severity.)
1. 2017 starts with near-recession-level rates of growth in the US.
2016 US GDP fell to a lower barometric pressure than economists were expecting, skinning their noses for them at an annualized 1.9% rate of growth, and crashing hopes that the third quarter’s sprint to an annualized 3.5% proved the Fed’s economic recovery was solid. (The average expectation for the fourth quarter had been about 2.5%.) The fourth-quarter plunge brought the annual rate of GDP growth down to the lowest it’s been since the official end of the Great Recession. (Though, as far as I believe, the Great Recession is still a screaming vortex that lies underneath the entire global economy. Its ills have never been healed, only masked.) The services industries took a fall in February that was sharper than its January rise. That appears to mark the end of upward growth that began last September.
2. Trumphoria in the US stock market could run out of hot air
The euphoric rise of the US stock market has formed almost entirely from speculation about Trump’s tax cuts and infrastructure spending, so it is likely to lose steam now that postponement of those plans shows sentiment outpaced reality. The level of irrational exuberance in the market (which typically precedes a big crash) has trumped numerous records for its rate of rise, the duration of its rise, the overall height of its rise, and the number of days of uninterrupted record-breaking. (See “Will Trump’s Talk Turn the Trump Rally into Lasting Gold or End in the Trump Dump?“)
In spite of the fact that the market’s uplift is built on warm thoughts alone, the US stock market could get a second boost if the Eurozone crumbles and euro capital runs for cover. (Already part of the rise in US stocks.) Ultimately, the collapse of Europe will be bad for trade, so non-European companies that do a lot of exporting into Europe will still suffer. In the event of a euro collapse, any boost will go toward companies that don’t have much European trade. Money fleeing to the US from Europe and China could be the United State’s salvation, but it all depends on who starts to blow apart first — who is seen is the safest harbor in the storm.