8 Dec 2014

Chill wind blows across the world’s economic landscape

There’s a slew of data showing the world economy slowing down. But forget the OECD, the EU and the IMF. The most graphic graph of today concerns McDonald’s.

Globally McDonald’s “comparable sales” – i.e. like for like – have fallen 2.2 per cent in a month, with a much sharper fall in China and Japan after unconfirmed allegations that its suppliers in Asia were using out-of-date meat.

The big yellow M has specific problems that predate the global slowdown: in the face of slightly higher-priced and slightly less mass-produced burger brands, it was always going to struggle, but the latest sharp monthly fall is a sign of the times (see below).


Next up, Japan, whose government revealed today the economy has shrunk by 0.5 per cent in the past quarter and is heading for minus 1.9 per cent year on year.

And then Europe, where the OECD think tank says the economy is “stuck in low gear”. Personally, I find it easy to move forward at low gear, so what they really mean is “stuck in neutral”: because the eurozone economy is close to stagnation.

While the UK and USA are growing well, the addition of slowing growth in China means big potential problems are emerging for the world economy in 2015. China’s exports slowed to their lowest since 2009 today, and its imports fell. This means China’s economy is markedly slowing down.

The falling oil price may provide some respite, but overall it is a barometer of low growth and low expectations of inflation.


If you add in another chart from China – its stock market – you can see the volatility in the situation rising. China stock index has gone almost vertical in the past week (see above).

While some of this is due to the central bank slashing interest rates, and some to China’s markets opening up to outside investors, to people on the ground it feels like a pre-1929 stock market mania. Ordinary people are clamouring to buy shares, open trading accounts, and the TV coverage is fuelling the mania to the point where it becomes illogical not to take part.

Fortunately, another near-inevitable market bust in China cannot trigger a global collapse. But these rapid and dramatic movements in global commodity prices, stock markets and exchange rates are signals of states competing to capture the diminishing amount of growth predicted in the developed world.

The key to the situation remains the eurozone. It is the one globally important economy that has not adopted loose monetary policy, where there is a clamour for it, and where the structural faults – busted banks and a stalled banking union – stand in the way of recovery.

Follow @paulmasonnews on Twitter