Restoring Balance

(Export Development Canada – Peter G. Hall)

History-making. That’s likely how the current economy will be sized up when the books are written. There are few episodes in the post-war period where market drama has been as intense. And with forecasts in freefall, getting a proper fix on the economic fallout is a huge challenge.

The shock isn’t just media hyperbole. What is unfolding is notable both for its severity and timing. Already in recession, industrialized economies took an unthinkable and sustained hit to GDP in the past six months. Globalization ensured that declines were remarkably synchronized the world over. Trade activity seized up over that period, and remains shaky. Weary of negative news, analysts the world over are scanning monthly data for the faintest signs that we have hit bottom.

Why is the impact so severe? The world economy is struggling to right super-sized imbalances, created at the end of an unusually long period of expansion. For five years, activity was well in excess of fundamental demand, a process spurred on by loose lending. Excesses may have begun in single economies, but they spread everywhere in the form of outsized trade, production and consumption. Such excesses, when realized, are rarely dealt with gently; the current sharp contraction, simply put, is proportional to the vast excesses that preceded it, but much swifter. Read more or watch the video here