The U.S. economy, the largest worldwide, is showing signs of decline, Lakshman Achuthan said, director of Economic Cycle Research Institute, drawing attention to the evolution of basic indicators, according to Bloomberg. “The U.S. economy is heading towards a new recession. The main indicators regarding non-financial services, manufacturing and exports are declining”, said Achuthan. U.S. central bank’s efforts to support the economy didn’t have a significant impact towards reducing unemployment and residential market recovery, he said.
“We have before us at least two quarters for the economy to deteriorate. If you think that these are the most precarious economic conditions, you have not seen anything yet,” said Achuthan. The number of voices predicting a bleak future for the world economy is growing. Among them, U.S. bank Goldman Sachs warned recently that there are risks on the rise for the global economy to move from “Great Depression” to “Great Stagnation”, writes the Telegraph.
In general, periods of stagnation are long periods of reduced growth around 0.5%, low inflation, rising unemployment, stagnant housing prices and low yields of the shares, the bank economists say. According to their calculations, there is a 40% chance that the current situation will turn into a period of stagnation in the developed economies.
“Given these risks, if countries manage to avoid a “Great Stagnation” by accelerating the recovery process, it might depend on their ability to regain confidence and implement reforms that can spur growth decisively”, noted analysts from Goldman Sachs.
Looking at 150 years of macroeconomic history, Goldman Sachs economists found that the chance of a period of stagnation is much higher after a financial crisis. After the research conducted, Goldman found that 60% of periods of stagnation that occurred in the late 1800s in several countries, both developed and emerging, were recorded in the period after the Second World War. Approximately 24% of them lasted more than a decade.
The longest period of stagnation has been recorded in India for nearly two decades in the ’30s.