The global economic slowdown

Trevor Evans

The 1980s finance-led phase of capitalism has been characterised by marked cycles led by the US economy, with periods of expansion leading to increasingly serious recessions in 1990/91, 2001/02 and of course 2007/09. The most recent expansion, now in its seventh year, has been especially weak, and the latest forecasts anticipate that growth will remain low (IMF 2016; OECD 2016; UNCTAD 2016). This is led by the world’s three largest economies – the US, the euro area, and China – which together account for more than half the world’s output.

United States
The US’s most recent expansion began in 2009, boosted by Obama’s US$ 787 billion expansionary programme, but it was not until 2012 that output returned to its pre-crisis peak, and growth has remained uncharacteristically weak.[1]

The expansion raised profitability. The share of profits in national income is strongly cyclical, and the peak has risen in every expansion since the 1980s, reaching a high of 14.5% of GDP in 2012. But the rise in fixed investment, which is also strongly cyclical, has weakened. Firms have made record distributions to shareholders through dividends and share buybacks, which incur lower taxes. Non-financial corporations have also become significant financial investors since the 1990s, with the value of their holdings rising from 4% to 9% of GDP. They have continued to borrow despite relatively weak fixed investment. Their indebtedness relative to GDP, which declined in the aftermath of the crisis, is once again as high as in 2008.