Update:
The Nowcast estimate by the NY Fed edged up to 0.71%. This is still extremely low though and well below trend.
"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist."
The General theory of employment, interest and money (1935)
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A couple of weeks ago both the German government and German media basically celebrated because the country avoided a technical "recession", defined as two consecutive quarter of negative GDP growth. That is because the German economy was growing at 0.1% in Q3 (~0.4% annualized) after shrinking 0.2% in Q2 (see below). The celebratory calls that a recession was avoided were obviously quite stupid since these growth rates are still abysmal. While not being in a technical recession, the German economy basically did not experience any growth at all for about half a year now. This is already a very severe cyclical downturn. Reasonable estimates would peg long-run trend growth at above 1% at least. So Germany's economy is already 1% below trend now for half a year and I am very doubtful that the next couple of quarters will lead to a substantial uptick in economic activity, given that Germany's manufacturing economy is extremely export-oriented and the global economy also seems to be in a cyclical downturn right now. Most data points suggest that China is slowing down substantially and US forecasts are also indicating that the economy is heading South. Both the New York Fed as well as the Atlanta Fed Nowcast models have revised their growth estimates for the Q4 substantially downward over the last few weeks: The US economy is now expected to grow at only 0.3% in the last quarter. While quarterly growth figures can be quite volatile, this is also some 1 to 1.5% below trend and might therefore turn into a more severe cyclical downturn. I do not quite think that this is the end of the US business cycle. The Fed still has some room to cut rates and should do so rather sooner than later. Then they might be able to engineer a so-called soft landing for the first time in US history. A lot of it will depend to what extent they are willing to look at market signals rather than useless Phillips-curve type thinking. This year gives some hope for optimism as the Fed took the inversion of the yield in the beginning of the year somewhat seriously and responded by cutting rate again. While I had hoped for an even bolder response, it looks like they did enough to prevent a substantial slowdown yet. Now it will all depend on whether they will fall behind the curve or not.
Update: The Nowcast estimate by the NY Fed edged up to 0.71%. This is still extremely low though and well below trend.
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