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Growth: The Trillion Dollar Question

By: Ian Campbell | Wednesday, January 23, 2013

The importance of GDP growth to world and country-specific economic well-being cannot be over-emphasized. Even more importantly the recognition that GDP growth is stated in 'nominal terms' - that is, it has two components being 'real growth' and 'inflationary growth'. At the heart of the matter is the long-term importance of the 'real growth' component of overall GDP growth.

Recently the World Bank, in the aftermath of a downgraded estimate of GDP growth by the Organization for Economic Co-operation and Development (OECD), is reported as having recently cuts its 2013 global growth forecast to 2.4%, and to only 1.3% in developed economies. The latter is likely to be less than what will be reported inflation - meaning that in real growth terms the World Bank likely is forecasting a decline in real growth in 2013 in the developed countries. This once again emphasizes the dependence on the developing countries for real economic growth - where the World Bank is now reported as forecasting 7.8% growth in Asia (net of Japan) in 2013.

Aside from the foregoing, an article this morning reports:

Without economic growth, and real economic growth at that, there can be no meaningful long-term economic recovery in the developed countries. Growth or lack thereof will have to be reflected in the financial markets over time. Currently, I continue to see a disconnect between where the financial markets are pricing things, and where I think they ought to be pricing things. In the simplest of terms this, of course, goes to whether currently the financial markets:

I have not seen anyone else make the points set out in the commentary in quite the same way, or as simply. Those who participate in the current financial markets should think hard about them - as for that matter so should everyone else.

Jonas Prising, who heads Manpower's operations in the Americas and Southern Europe is quoted in the referenced article as saying "Uncertaintly is itself becoming more of a certainty". That, Mr. Prising, is a very astute mouthful.

Topical Reference: Davos bosses hunt $5 trillion new revenue in low-growth world, from Reuters, Ben Hirschler, January 23, 2013 - reading time 3 minutes, thinking time much longer.

 

Author: Ian Campbell

Ian R. Campbell, FCA, FCBV
Economic Straight Talk

Through the Economic Straight Talk Newsletter Ian R. Campbell shares his perspective on the world economy, the financial markets, and natural resources. A recognized business valuation authority, he founded Toronto based Campbell Valuation Partners (1976), Stock Research Portal (2007) a source of resource companies market data and analytic tools, and Economic Straight Talk (2012). The CICBV* annually funds business valuation research in his name**. Contact him at icampbell@srddi.com.
* Canadian Institute of Chartered Business Valuators
** through The Ian R. Campbell Research Initiative

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