Absent Political Leadership Brings Global Economy Down, Says Chief Economist

Drought-like conditions in political leadership engulf the world, which makes the future of the global economy bleak, if not worse, unless something is done about it, according to Diane Swonk, chief economist and managing director of Mesirow Financial. Mesirow Financial, a diversified financial services company headquartered in Chicago, said in its July issue of Themes on the Economy.

Swonk surveys major regions of the world, starting in the U.S., and spoke over the last two months with more than 200 economists, CEOs and policy-makers who report drought-like conditions worldwide.

Diane Swonk, Chief Economist & Managing Director, Mesirow Financial

Case in point is that even in the halls of U.S. Congress, there are no signs of budding leadership amidst the presence of deep spending cuts and sudden tax increases that threaten the economy if no action is taken, says Swonk in the Themes on the Economy.

“The [U.S.] Congressional Budget Office estimates that the bill associated with the ‘fiscal cliff’ could cost the American economy as much as 4% of real GDP growth and thrust the U.S. back into recession at the start of 2013,” Swonk says in the issue. “It is hard to make a commitment to hiring, in particular, when you know you may have to start firing again, as soon as January.”

Swonk continues gauging economic weakness, political inaction and a few countries resisting such trend.

Canada and Mexico are doing well according to Swonk. Canada is doing better than the U.S. largely because of its automobile sector rebounding, its mining activity picking up, reducing its cost in oil extraction and a recovering housing sector.

“The housing market is also booming [in Canada], spurred by both a recovering economy and a surge in new immigrants,” says Swonk. “Toronto alone received 200,000 immigrants over the past five years.”

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“Inflation remains tame, which frees up the central bank to ease monetary policy further,” she says. “This marks a sharp reversal of the fiscal woes the country faced in the mid-1990s and means they can engage in additional fiscal stimulus if necessary.”

In Europe, increased support for more growth over austerity measures has forced Germany to backtrack a bit and extend the deadlines to achieve lower budget deficits within the region.

“A weaker euro, easier monetary policy and a realization by policy makers that they must move more aggressively are all expected to help stabilize the region,” Swonk predicts.

In Asia, China’s economy will continue to grow because its government is spending on infrastructure projects. However, Swonk warns that overbuilding on unnecessary projects could undermine the country’s growth in the medium term.

In the Middle East, oil prices are falling. “Monarchies are having a hard time meeting the budget needs for subsidies required from keeping their populations from rebelling,” she says.

In Sub-Saharan Africa, its economic activity is expected to continue at what Swonk forecast last year, and will accelerate in 2013. “Investors mine the untapped potential of the region,” she says.

But the question remains, will the U.S. and Europe take the necessary steps to tame the financial markets?