Notes from the front – of 4/5/2016

Western economies slowing, Chinese upturn

Latest data show that the Western economies, led by the US, are once more slowing. At the same time China is experiencing a modest rebound in activity. This real divergence stands in sharp contrast to the propaganda in the Western media and from many economic commentators. The reality is that the source of the world economy’s stagnation is in the west and in particular in the weakness of investment in the Western economies.

The preliminary estimate of US GDP growth for the first quarter of 2016 was just 0.5 per cent on an annualised basis, that is just 0.1 per cent growth from the fourth quarter of 2015, which is effectively zero. Crucially private sector investment has fallen for three consecutive quarters and, although the data for profits is not yet published profits also fell into recession in the second half of 2015.

The less volatile, more reliable measure of growth shows that the US economy is growing at a rate of less than 2 per cent from a year ago. On the same basis China’s economy grew at a 6.7 per cent rate from a year ago in the first quarter. This represents a mild acceleration in growth and is led by investment. Specifically, the investment upturn was led by a 23.3 per cent rise in investment by state-owned enterprises in the quarter. Industrial profits also rose.

This shows the inherent superiority of the structure of the Chinese economy, where the dominant sectors of the economy (banking, energy, transport and so on) are in public sector hands. The US is obliged to wait for a private sector profits recovery before investment will rise. The same is true in Britain, where the government has been busy cutting its own meagre levels of investment alongside private sector investment weakness. UK manufacturing is now back in recession. It is this capitalist, consumption-led model of the economy that is failing. China can rebound by getting the state sector to lead an investment recovery.

US attempts to stop rout of allies at Aleppo

The forces backing the Assad regime in Syria have launched an offensive against Al Qaeda-linked al Nusra front and ISIS. Amid claims from both sides it is clear that they are being pounded and that they may be pushed back in Aleppo, the strategically most important and largest city in the north of Syria.

The US and its Western allies have launched a huge propaganda offensive against Assad in response. US Secretary of State Kerry has called for an immediate ceasefire. The US and its Western allies clearly do not want the defeat of these anti-Assad forces, despite their own rhetoric. This fits a long-term pattern, where US airstrikes are meant to harry ISIS, avoiding al Nusra and to direct them towards fighting Assad and forces supporting him. Their primary objective all along has been regime change in Syria. The twin terrorist menace of al Nusra and ISIS are considered to be only secondary targets, if at all. By contrast, all democrats would welcome the outright defeat of both al Nusra and ISIS.