Reasons for Treasurers to be cheerful (yes, there are some!)

Oct 1st 2016 |

It’s the end of the world, right? Terrorism has never been worse. War is more prevalent than before. Economies are in worse shape than they have been for decades. Corporates face a uniquely dangerous cocktail of uncontrollable risks.

You could be forgiven for believing all of these things. Sensationalist, 24/7 global media coverage and shocks like the Turkey coup, the Nice attacks and Brexit certainly create that impression.

But is it true?

Take terrorism. ISIS is a brutal and indiscriminate killer, but actually in Europe terrorist attacks were far more common between the 1970s and mid-1990s. The IRA in Northern Ireland, Spain’s ETA and the various terrorist and mafia attacks of Italy’s anni di piombi (‘years of lead’) were far more prolific – and, according to the National Consortium for the Study of Terrorism and Responses to Terrorism, the peak year was 1979, with 1,019 attacks perpetrated in Europe. Today’s levels are much lower than the historical average.

In the US, terrorism is a marginal problem at best. With the grievous exception of 9/11, terrorist attacks in America have been few and carried out by lone wolves. Casualties are dwarfed by the deaths from domestic firearms incidents or road traffic accidents.

Overall, between 2000 and 2014 less than three percent of terrorism occurred in Western countries, according to the Institute for Economics and Peace. Things have got worse in the Middle East, but developed countries are probably the safest they have ever been. Of course recent outrages are tragic, but if the past is any guide, they will have a limited impact on the long-term trajectory of economies and societies.

What about the economy?

Again, it’s a question of perspective. Who now remembers the S&L crisis in the US, SARS or the 1997 Asian crisis? The Russian GKO default? The first Gulf War? They were catastrophes of their time but we pay them little attention now. We may remember the dotcom crash but equity prices have recovered and a new, real digital boom is delivering transformational growth and productivity opportunities.

Against historical levels, employment rates, average hourly wages and corporate profits – to take just three indicators – are at or near the highest levels they have ever reached. And it’s easy to forget what that means. In 1990, average hourly wages in the US were around $10. They were under $15 in 2000. They were closer to $23 by the end of 2015. US GDP per capita was around $35,000 in 1990. It’s now more than $50,000. These are huge improvements in average living standards and represent opportunities for companies able to create products consumers want.

What about right now?

Perhaps the biggest boost is oil. The low oil price may be hurting the net oil exporters, but they only account for around US$5 trillion of global GDP. The top 10 net oil importers, which includes all the world’s largest economies, account for nearly 10 times as much. The benefits far outweigh the costs.

Then there is good news from the US. Yes the employment numbers could be better, but the IMF’s forecast for US GDP growth in 2016 and 2017 growth is 2.6 per cent -- stronger than the average growth of just over two per cent since the financial crisis and decent growth for the largest Western economy and a key driver of the global economy.

And other statistics provide glimmers of unfashionable good news amidst the gloom. The International Air Transport Association (IATA) announced global passenger traffic results for January 2016 showing demand (revenue passenger kilometres or RPKs) rose 7.1% compared to January 2015. Growth was particularly strong in Asia.

There is even the possibility that there is $2.1 trillion more trade in the world than the World Trade Organisation reports. A recent report by Equant Analytics has calculated that world trade now totals $21.22 trillion, with some’ $2 trillion of trade missing due to underreporting. If we can ‘lose’ $2 trillion of trade in the numbers, what other good news is out there, unreported?


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