Candidate Romney continually asks, are we better off today than we were four years ago?  From an economic standpoint, the answer is a clear “yes.”  For the six months starting September 2008, our economy would shrink 10%; this was our worst economic performance since the 1930s.  Today our economy may be growing by an anemic 2%, but at least it is growing. 

The Economist Intelligence Unit is the consulting company side of the people who put out the Economist Magazine; Leo Abruzzese is their forecasting director; his job is to put together worldwide data and sell that service to companies and governments. 

Speaking October 23^rd to MassMEDIC (the Massachusetts Medical Device Industry Council), Abruzzese suggested that 2013 promises to be as rocky a road as 2012, although it is probable we are moving in the right direction. 

Some high points of Abruzzese’s remarks: 

• Of the three major global economic engines (the United States, China and the European Union), it is no secret that Europe is a mess.  The budget cutting is so severe as to cause a shrinkage in the economy, rather than growth. 
• China, which is still only half the size of the US economy, is growing at an anemic (for them) 7.5% rate last quarter, a rate which nonetheless virtually everyone else envies. 
• The United States growth rate is slow, looking for traction, and this level of uncertainty and sluggishness will continue through 2013 by reason of the nature of the deep recession. 
• Central banks worldwide, including the United States, are printing money; this normally might be a problem but today is a stimulus; when economies begin to improve, central banks will have to be alert to move the excess cash out of the system, lest the result be steep inflation. 
• The politicians have this one right: it is all about jobs.  Jobs create income which creates spending and 70% of our economy is consumer driven. 
• We are coming out of the longest and deepest recession since World War II and it is not a normal recession, it is the kind of recession that can take six years from which to recover (it was a “bubble buster”). 
• The economy will not fall off the “fiscal cliff” threatened by automatic tax increases and spending cuts; politicians may be stupid but they are not that stupid. 
• Nonetheless, business is conservative and is holding back pending the election and the economic fallout. 
• Corporate profit as a share of GDP is 13% per annum which is the highest in history (although this increase has flattened out); why? decreased costs, primarily driven by low hiring. 
• Over the next ten to fifteen years the greatest economic growth will be in the BRIC countries. 
• China’s 2013 projected growth rate of 8.6% will be driven in part by stimulus and in part by the overall trend of urbanization which drives an economy; China will soon have 25 cities with more than 25 million people, and for the first time will exceed the United States in retail sales in 2013. 
• China has poor healthcare systems; the need for healthcare is often driven by aging; China, largely because of the one child policy, is aging quickly, while over the next twenty years the United States median age will remain relatively flat at between thirty-five and forty; meanwhile, China’s median age will exceed fifty, approaching the median age of our fastest aging populations (Japan and Germany). 
• The dollar will remain the standard world currency for a long time, in part because China’s currency is not freely traded but rather is tightly controlled by the government; in the long run, Abruzzese sees two or three world currencies, those of the United States, China and the European Union. 
• Will the jobs come back to the United States?  Some construction jobs will come back, and some but by no means all industrial jobs (many of which have gone overseas for good); the one sector that has not lost jobs in the United States during the recession has been healthcare. 
• United States debt needs to come down but it stands at 70% of our GDP; Japan is at 220%, Germany at 60% to 65%, Greece and Italy at 140% to 150%; the Scandinavian countries have done much better.  What is “saving” the United States from severe impact of this level of debt is the fact that the dollar remains the global reserve currency, everyone wants to hold dollars.  Our ten year bond is priced at 1.7%. 

One of the more unsettling aspects of this presentation, although one that is no doubt an honest disclosure, is that his remarks represent the probability as calculated by his group, but other darker models still have a 30% probability. 

There were no great surprises in the thrust of Abruzzese’s remarks, although some of his statistics seem startlingly at first blush at least to a non-economist.  The sub-texts are a bit more troublesome, and perhaps justify what is reported to be the reticence of businesses to commit: the “fear of the cliff” plus the fact that the European Union is so close to the brink plus the continuing debt crisis elsewhere plus uncertainty about China, reflected in the 30% probability of a double-dip recession, is enough to give anyone pause.  And, Abruzzese did not discuss, and no-one asked about, possible impact of geopolitics. 

It looks like next year may be a good one to be heavily invested in corn.