A game of shifting blame for the GDP slowdown

07.02.2019 18:04|Marcin Lipka

"GDP growth in the global economy gradually slows down and in the eurozone is decelerating strongly. Those most affected by the downturn are actively trying to find the causes of their failures abroad. However, they will not be found there, but putting the matter in this way worsens the perspective of the injured market for the coming years," writes Marcin Lipka, Conotoxia Senior Analyst.

On Thursday, the European Commission published new macroeconomic estimates for the European Union for the next two years. In the report, we can also find forecasts for Poland. Compared to the autumn estimates, the development pace has been revised downward by 0.2 percentage points to 3.5% for this year. Apparently, it is not much, but in comparison with the 5.1% increase in 2018, the scale of the slowdown is noticeable.

This provoked a comment from Finance Minister Teresa Czerwinska, who stated to PAP that "a slight downward revision of GDP growth forecasts is the result of a significant decrease in GDP growth forecasts in the eurozone." It is hard to disagree with this since growth in the common currency area is expected to reach only 1.3%, i.e. as much as 0.6 percentage points less than estimated in November. However, exactly how does the presumed culprit of this slowdown - the entire eurozone, want to defend itself?

This is indeed not our fault

In this "blame game" we look in the European Commission's report for an explanation regarding the origin of the slowdown that is hindering Poland. The European Commission, explaining the significant worsening of the growth pace in comparison to earlier projections, states that "the majority of the loss of the economic growth rate is related to the decreasing support for external factors."

However, we must acknowledge the EC's fairness that also points to internal factors, i.e. the slowdown in Germany (e.g. related to the automotive sector) and Italy (slowdown in consumption).

Although it seems that the culprit has been found, it is not true. Peter Altmaier, the German Economy Minister said a few days ago that the economic situation in Germany is mainly worsened by ”external trade factors”, pointing to Brexit, customs war and international tax policy.

In a very similar direction are also migrating explanations from Italy, a country that entered recession in the second half of 2018. Prime Minister Giuseppe Conte, explaining the catastrophic outcome of Italy, quite fiercely stated that "there is a trade war between the US and China that affects exports, and this will not escape even the most naive analysts.”

We have to seek further

Conte's tenacity has worked, so we are looking for those to blame outside the eurozone. On Thursday, there was the meeting of the Bank of England. The monetary authorities do not run away from the responsibility of Brexit (in fact, they themselves campaigned for staying in the EU), but in the context of the slowdown, they first mention the weaker external situation, and only then Brexit.

As a result, there is no choice: we need to expand our search further and go overseas or to Asia. After all, there is a trade war between the United States and China. Those countries should feel guilty when everybody points to them.

In the US, people usually avoid looking for guilty parties outside the country. This is because the US economy is closed (relatively small trade as a share of GDP). President Donald Trump wrote on Twitter less than two months ago: "China has just announced that its economy is slowing more than expected due to our trade war with them." However, Trump stressed that the US economy "is doing very well".

The guilty are found, but it is not their fault

While looking at macroeconomic data from the USA, one does not see a strong slowdown, i.e. Trump is right in the context of his own country. The paradox is that China is also doing quite well. In the latest IMF forecasts, its economic growth is expected to reach over 6% by 2020, and in Q4 2018, it was 6.4%. This is only 0.3 percentage points less than the average in the last three years. Considering that the growth in Italy has been revised from 1.2% to 0.2% this year, the scale of the slowdown in the Middle Kingdom is therefore marginal.

Blaming everyone in the vicinity for one's own failures has recently become very fashionable. Normally, however, these failures are the consequence of a bad internal policy. This is the case especially in Italy, where GDP per capita has shrunk by about 3% compared to 20 years ago. At the same time, it increased by 25% in the USA and 4-fold in China.

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