Deutsche Bank's annual long-term asset return study is always worth reading. It was one of the first to make the link between an ageing Western population and the end of the 1982-2007 economic supercycle. This year's study is titled 'A Journey into the Unknown'. It highlights the enormous uncertainties that surround the global economy.
Their chart above is also a sobering reminder of the depth of current problems. It shows the performance of the major Western economies since the 2007/8 peak, in inflation adjusted terms:
• Over half of the economies have still to recover their earlier peak
• Only Australia, Canada and Switzerland are above it by >2%
• The US, despite $tns of stimulus, is only 1.8% above its peak
This is completely contrary to most historical experience. Normally, a deep recession is followed by a very sharp recovery.
But financial crises produce a different result. As the blog noted back in December 2008, these last longer, and will normally produce deflationary results. Thus Deutsche Bank is not optimistic that recovery is just around the corner.
They warn that policies have produced "a lethal cocktail, and one that has helped contribute towards shorter business cycles and weaker growth".