Oh dear. Reinhart and Rogoff may wish to avoid ever holidaying in Greece, Portugal, or Spain. Their seminal (and now-disproved) paper – arguing that once a country’s public debt was over 90% of their GDP, there is a strong negative relationship with the country’s economic growth – probably took up a fair amount of the Troika’s discussion time when it was deciding on the measures the peripheral countries needed to take if aid were to come their way.
Of course, Reinhart and Rogoff were not the only ones to argue that high government debt is bad for growth. Over the years, several economists have pointed out that government borrowing can crowd out private investment, and that reducing government borrowing can allow growth to resume. Read more
With the United States stumbling a bit in this week’s announcement of fourth-quarter GDP, it might be an appropriate time to ask the question, is it Asia that’s leading this global recovery? Generally, I’d agree with an assertion that Asia, particularly China, is somewhat driving the global economic recovery. While U.S. GDP was set back by some one-off issues with defense spending, China saw quarter-on-quarter growth of around 2%, driven by up-ticks in industrial output and a boost in exports late in the year. The smaller Asian economies are also doing very well, but none swings the lead that China does.
When contemplating Asia, it’s important to remember that the economic story in Asia, and above all in China, was one of a real estate and infrastructure boom; that is, until two or three years ago. Read more
Usually when GDP growth unexpectedly drops below zero, economists and markets start screaming “recession!!” With today’s print of GDP (gross domestic product) showing a headline 0.1% contraction, I’d encourage you not to worry too much and think instead about shifting those letters to DGP and remember “Don’t Gotta Panic.”
Today’s initial estimate for fourth-quarter 2012 GDP wasn’t stellar, but it sure was a lot better than the headline 0.1% contraction suggested. Why don’t we have to panic? Read more