Moody's "Summer of Discontent"

Moody’s issued its cleverly titled “Summer of Discontent” analysis of the global economic situation. The comments about the next quarter were dire, but, as usually, the rating agency was late in its evaluation and short on remedies.

Moody’s looked across all of the PMI data from nations that post the information and concluded: “A global slowdown of indefinite duration is underway.” The slowdown is obvious. The observation that it will be indefinite is new.

Moody’s viewpoint has become more commonplace among other experts. Most forecasts point to a beginning or an end. Economic models have become sophisticated enough and economists precise enough so that most downturns or upturns have a finite life span. Most experts are willing to agree to the duration of these spans.

But the global economic trouble has become immensely complex as questions about whether developing nations have any chance to dodge the troubles of the developed ones. Internal consumer spending should be a support for GDP expansion in China, India, Brazil and Russia. But each has a challenge that may undermine robust growth. In Russia, it is the price of oil. In China, the level of exports.

Moody’s data point to the conclusion that the recession just ended has not entirely lost its grip, and the present state of the global recovery is a sure sign of that. Moody’s commented:

After slowing from 2010’s 5.3% to 2011’s 3.9%, world economic growth ought to dip to 3.2% annually in 2012 according to the recent drop to 51.6 by the global composite PMI’s latest moving three-month average. When the global composite PMI averaged a much livelier 56.8 during 2003-2007, the world economy expanded by a much faster 4.6% annually, on average.

It is hard to imagine a set of events that could move the worldwide economy back to the 4.6%.

Moody’s “Summer of Discontent” goes on to look at what the slowdown will do to the value of certain asset classes, such as stocks, corporate bonds and gold. The report does not suggest how growth might be restarted. Moody’s, like most other experts, cannot offer a set of solutions or forecast a recovery because, for the time being, there are none that seem adequate.

Douglas A. McIntyre