A Lot Of Interest Rate Pressure

A Lot Of Interest Rate Pressure

There is no mistaking just how strong the global economy is right now. In fact, it has been very strong for a very long time.

This is leading to the Bank of England, the European Central Bank, the Bank of China and the Federal Reserve Bank of the USA to be all looking to reduce stimulus and raise interest rates.

It is really a case of people belatedly recognising just how good things are. Very late in the game, economists and commentators around the world are having their eyes forcibly opened to the glint of a positive economic outlook. Already in real time, right now, we have strong and accelerating economic growth just about everywhere.

A Lot of Interest Rate Pressure

The USA, the world’s largest economy, is growing at 3.1%. The world’s second-largest economy, fully two thirds the size of the US, China, is growing at a whopping 6.9%. The Eurozone is growing at a firm and improving 2.3%.

These are the three major economies of the world. They also represent the new world order, the one I laid at APEC in 2012, of there being three equal superpowers and economic stability blocks in the world. It is their economic stability nature, post the Global Financial Crisis shake-up, that is so valuable. I see the world as now having three equal weights on this spinning ball called Earth. It is a more sustainable scenario than just one or two such centres of gravity.

The super exciting thing is, and this point cannot be made emphatically enough, is that all three major blocks are growing at very healthy levels of activity. Not only that. They are still accelerating to even better times for us all. We tend to think the current situation is normal, and it may well be the new normal, but it certainly hasn’t been across the length and breadth of history.

  • 200 years ago 90% of the world’s population lived in absolute poverty.
  • 100 years ago 80% of the world’s population lived in poverty.
  • 25 years ago 37% of the world’s population lived in poverty.
  • As of 2015, this ratio had fallen, halving in absolute numbers to just 10%.

Clearly “Globalisation”, which is a function of modern technologies and communications, has greatly accelerated the decline in poverty in the world. We do indeed live in the most prosperous period in history. The GFC was the big reset of our times, economically speaking, and it has had both a painful impact, and changed how we do things for the better. There are positive outcomes with governments all around the world far more accountable, transparent and therefore responsible regarding their public purse actions.

All of this adds up to a more stable global economic platform. Upon which the human spirit of innovation and aspiration can build ever greater achievements.

Just by way of example of how the world has changed, but we tend to be in the warming water not to notice, is that Tesla, the electric car and battery and solar cell company, is a self-sustaining energy and transport system. This is science fiction stuff that is real in the current day. Did you know Leon Musk, the head of Tesla and just 46 years of age, has already built the biggest man-made structure ever built in the history of the world? The Tesla Giga-factory.

That’s quite an achievement. Quite a capability. Yet such is our culture of today that when he was recently on the Gold Coast, he was mentioned as a one sentence footnote to a story about his girlfriend, an actress, being here? Quite funny really.

Actually, that’s a nice feed into the notion that I have long expressed that the Gold Coast could become Australia’s third largest city. More on this another time. The thing is though, with an incredibly prosperous global backdrop, even Australians failing at keeping up with global competition, as our politicians and senior bureaucrats are doing, cannot stop an overall and increasingly broad based upswing in the Australian economic outlook too. It is our private sector that is now driving the success of our nation. Political leadership is largely non-existent.

The Reserve Bank of Australia is a long way behind other central banks around the world in beginning to raise rates. Australia, having one of the world’s worst unemployment levels, and an economy at the bottom of the growth range, albeit improving, will be maintaining rates at 1.50% for a very long time.

Just be aware, as you hear of interest rate hikes elsewhere around the world, that this is solely due to the reason of strongly rising prosperity. Interest rate hikes will not be slowing any of these economies. Interest rates are still at historically low levels.

It is just a sign of even better times to come.

Clifford Bennett

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