Key Trends in Globalisation

Average economist predictions for US GDP would mean only 0.9% annual average growth over business cycle to end 2011

Summary

A recent Wall Street Journal survey of economists revealed an average prediction of 3.2% US GDP growth in each quarter of 2011. This figure may be used to  further clarify the analysis of US growth trends carried on this blog and discussion of the conclusions of Gavyn Davies, Jim O’Neill, and others regarding the issue.

A previous post noted the US economy has been slowing for several decades. The average growth rate currently projected for cyclical US recovery is insufficient to reverse such gradual but long term deceleration. The implications of 3.2% growth to the end of 2011 are that US GDP would have grown at an average of only 0.9% in 4 years of the current business cycle – substantially below trend to an equivalent point in previous post-World War II cycles. Such a 3.2% growth rate, even maintained for a 4 year period, would not reverse the US economy's long term deceleration.

Therefore, unless there is a sharp acceleration of US growth above current projections, the trend of long term slowdown of the US economy will continue.

Trends in US business cycles

To allow comparison of US performance during business cycles, Figure 1 shows quarter by quarter economic growth in each US cycle since 1973. The lines show the development from the peak of the preceding cycle, through the cyclical recession, to the final quarter of growth before the ensuing recession – the year indicated for each line is the starting one for the the cycle. For comparison a 2.5% annual growth trend line and a 1.7% annual growth trend line are shown – these being respectively average the 20 year and 10 year US annual growth up to the latest available US GDP data for the 3rd quarter of 2010. For the latest business cycle, starting in the 4th quarter of 2007, a 3.2% growth projection for five quarters after the latest available data, i.e. to the end of 2011, has been added.

It may be seen from Figure 1 that 3.2% growth to the end of 2011 would leave US GDP growth considerably below that in the equivalent stages of previous US business cycles.  .

Figure 1

 

Taking comparisons, the 4th quarter of 2011 is exactly 4 years after the peak of the previous business cycle in the 4th quarter of 2007. Given 3.2% annualised growth until the end of 2011, US GDP in the 4th quarter of 2011 would be 3.4% above its previous peak. For comparison, after 4 years of the 1980 business cycle US GDP was 9.1% above its previous peak, in the 2000 business cycle the equivalent figure was 9.5%, after 4 years of the 1973 business cycle US GDP was 10.0% above its previous peak, and after 4 years of the 1990 business cycle US GDP was 10.5% above its previous peak.

Average growth over the cycles shows trends clearly. Annual US GDP growth after 4 years of the 1980 business cycle averaged 2.3%, with the equivalent figures for the 2000 cycle being 2.4%, for the 1973 cycle 2.5%, and for the 1990 cycle 2.6%.  However, given an average 3.2% growth until the end of 2011, the annual average US GDP growth over the 4 years of the present US business cycle would only be 0.9% – self-evidently a significantly slow recovery in comparison.

10 and 20 year moving averages

To show the effect of such performance on longer term US growth rates, Figure 2 shows the 10 year moving average of US GDP growth with a projection of 3.2% growth until the end of 2011. Figure 3 shows the same projection analysed in terms of a 20 year moving average.

Figure 2

Figure 3

 

As Figures 2 and 3 show the average economists prediction of 3.2% growth in 2011 would be insufficient to reverse the long term slowdown in US growth whether a 20 year or a 10 year moving average is taken.

Considering the 20 year moving average, 3.2% US GDP growth to the end of 2011 would raise 20 year average US GDP growth to 2.7% from the present 2.5% – still below the 3.0% in the 4th quarter of 2007, before the current cyclical downturn commenced, and which was itself below the long term rate of growth of US GDP.

Taking the 10 year moving average, 3.2% US GDP growth to the end of 2011 would raise the 10 year average growth figure to 2.0% from the present 1.7% – still well below the 2.9% in the 4th quarter of 2007.

Therefore it is clear that 3.2% growth in 2011 would be insufficient to reverse the long term deceleration of US growth.

Long term consequences of a 3.2% growth rate

Taking a longer time frame, it is also clear that a much more prolonged period of  growth rates at current projections would not greatly alter the situation regarding failure to reverse the gradual but clear long term slowdown of the US economy. To show this, Figure 4 illustrates the result of 3.2% US GDP growth maintained until the end of 2015, i.e. over a 4 year period, for a moving 10 year US annual average growth rate. Figure 5 shows the same for a  20 year moving average. It may be seen that in neither case would a reversal of the long term deceleration of US growth rates occur.

Figure 4

Figure 5

 

Taking figures, 3.2% US growth maintained until the end of 2015 would raise the 20 year moving average for US growth to 2.7%, compared to 3.0% in the 4th quarter of 2007, before the current recession, and raise the 10 year moving average for growth to 2.1% compared to 2.9% in the 4th quarter of 2007.

Even a 4 year period at currently projected growth rates would not reverse the long term slowing of the US economy. Only if there were an acceleration of US growth rates to levels significantly above those currently projected would the gradual but progressive slowing of the US economy be reversed.

Conclusion

Analysis of prospects for the US economy has tended to concentrate on “spectacular” or short term trends such as predictions of double dip recession, Japan style prolonged stagnation, or fast cyclical growth. The fundamental trend in the US economy, however, is its long term slowing from its historic growth rate. Current projections for US growth rates would not alter this deceleration.

Long-term and short-term cyclical prospects for US growth

Gavyn Davies, chair of Fulcrum Asset Management and former head of global economics at Goldman Sachs, launched a discussion on his Financial Times blog on prospects for US economic growth. This, among other issues, refers to material which has appeared here.

This discussion, as both Gavyn Davies and the present author note, highlights the need for clarity in distinguishing between short-term cyclical and longer term trends in US growth and problems in perspective that arise if the two are conflated.

The aim of the present article is therefore to provide some precise numbers which clarify these points. This also gives parameters by which to judge US short (and long) term growth performance as economic data is released – the US will publish new GDP data, for the 4th quarter of 2010, on 28 January.

Assumptions on US economic growth

Gavyn Davies referred to an article which appeared here entitled “The long term slowing of the US economy”. This noted the progressive long term deceleration of the US economy.

If a 20 year moving annual average of US GDP growth is compared at 10 yearly intervals, then 20 year annual average growth to the 3rd quarter of 1970 was 3.8%, to the 3rd quarter of 1980 3.6%, to the 3rd quarter of 1990 3.2%, to the third quarter of 2000 3.2%, and to the 3rd quarter of 2010 2.5%. For further details readers are referred to the article.

Gavyn Davies confirmed the article’s overall trend conclusion on the long term deceleration of US growth and provided further information on US GDP per capita GDP, which had not been dealt with in the article. He commented: “The rate of [US] growth has clearly slowed down in recent decades. I do not think this trend has been arrested or reversed, but there could still be scope for several years of cyclical recovery.”

I strongly agree with emphasising this distinction and it therefore further clarifies the discussion if definite numbers are plugged in.

Gavyn Davies, and Jim O’Neill chairman of Goldman Sachs Asset Management, both suggest as parameters of strong US growth performance in the coming period figures in the region of an annualised 3-4%.

Gavyn Davis noted positively: “according to the ISM business surveys and much other data published lately, the growth rate of [US] GDP may have risen to around a 3.5 to 4 per cent rate.” Jim O’Neill wrote: “A number of quarters of 3-4% or more real GDP growth are likely in the next couple of years.”

Certainly, compared to recent US growth performance, an annualised 3-4% would be high – the current US 5 year average annual growth is 0.9% and current 3 year growth is zero.

However, it should be noted that such stronger cyclical growth would still be insufficient to halt the long term slowing of the US economy. To show this Figure 1 shows the 20 year moving average for US GDP growth with two projections for the next two years 2011 and 2012 - that US growth is 3% or 4% in the nine successive quarters from the latest available data (the 3rd quarter of 2010) to the end of 2012. Figure 2 shows the same projections using a 10 year moving average.

It may be seen from Figures 1 and 2 that neither a 3% or a 4% growth rate sustained over the next two years would be sufficient to reverse the long term deceleration of the US economy.

Figure 1

Figure 2

 

Results of projections

Taking first a 20 year moving average, if a 3% US growth rate were maintained to the end of  2012 the 20 year US annualised growth rate would  advance from 2.5% to 2.7%. If 4% growth were maintained for two years then the US 20 year moving growth average would be 2.8%.

However in the 4th quarter of 2007, that is the quarter before the start of the current US recession, the 20 year moving average growth rate was 3.0% – and as can be seen from Figure 1 this was a decline from the US rate of growth in previous decades. Therefore neither 3% nor 4% growth for the next two years would be sufficient to reverse the long term decline in the US growth rate.

Turning to a 10 year average, 3% growth over the next two years would take the 10 year US growth rate to 2.0% and 4% growth would take it to 2.3%. However the US 10 year moving average growth in the 4th quarter of 2007 was a significantly higher 2.9%.

Therefore annual average US GDP growth over years of 3-4%, as may be seen from Figures 1 and 2, would be insufficient to halt the declining trend of US 10 year GDP growth.

Longer term projections

It is indeed striking that even if 3-4% annual growth were continued for over four years, until the 4th quarter of 2014, this would still not be enough to reverse the slowing long term trend of US growth. A 4% US growth rate sustained until the end of 2014, for 17 successive quarters, would take the 20 year annual average of US growth to 2.8% and the 10 year average to 2.4%. A 3% US growth rate sustained until the end of 2014 would take the 10 year annual average growth rate to 2.0% and the 20 year annual average to 2.6%.

In neither case would this be sufficient to take the long term US growth rate back to pre-recession levels.

Recovery in business cycles

This above data illustrates, of course, that trends and cycles are not separate. Closer examination indicates that the long term slowing of the US economy is due not simply to deeper recessions, most notably the present one, but to slower growth during expansions. Long term deceleration of the US economy is a result both of the depth of recessions and of the relative slowing of recoveries. 

To illustrate this the fundamental data regarding successive US business cycles is illustrated in Figure 3. This shows economic growth in each US cycle since 1973. The lines show the development from the peak of the preceding cycle, through the cyclical recession, to the final quarter of growth before the next recession – the year indicated for each line is the starting year of the cycle. For comparison a 2.5% annual growth trend line and a 1.7% annual growth trend line are shown – these being respectively average 20 year and 10 year US annual growth to the latest available data.

Figure 3

 

The fundamental trends shown by Figure 3 are clear. The current business cycle naturally saw the deepest fall of US GDP in any post-World War II recession. The 1973, 1980 and 1990s cycles culminated in annual average growth over the cycle above the 2.5% trend, while the 2000 and 2007 cycles showed growth below it – which simply illustrates in detail the long term slowing of the US economy.

The 2007 recession shows a trend which is so far significantly below both the 2.5% 20 year annual average and the 1.7% 10 year US average. Failure of US growth to eventually finish above these figures over the cycle would confirm a further slowing of the US economy.

Comparisons of US growth

Such trend rates of US growth in previous cycles give an appropriate benchmark for considering US economic recovery. Evidently, if a comparison is made to extreme scenarios then US performance might appear strong.

Jim O’Neill, for example, makes a comparison to Japan’s two decade long stagnation after 1990: “My hunch for the surprise of 2011 is that the US will positively shake people up… I believed that in spite of the considerable challenges for the consumer, the US economy would not fall into a Japan-style abyss of a lost decade or two. The evidence that the US will not go down this route will, I suspect, be this year’s surprise.”

By comparison to Japan’s post-1990 performance US performance of course would appear robust. But only if it were held that there was a major chance the US could enter a Japanese 1990s style stagnation would the fact that it did not do so constitute a surprise. An exaggerated standard of comparison has the inevitable effect of making US economic performance appear “strong”.

When making a more sober and quantitative standard of comparison, however, Jim O’Neill’s data is not precise and therefore obscures an appropriate comparison - precisely the slowing trend of US long term growth. He writes: “underlying productivity performance, together with its relatively more favourable demographic dynamics, suggested to me that the US might at some stage shift back into a growth trend of close to 3%… the behaviour of both the Federal Reserve and post midterm election Congress has probably allowed the momentum to take the US back into its growth trend…. A number of quarters of 3-4% or more real GDP growth are likely in the next couple of years.”

But, as the data given above shows, 3 per cent has not been US trend growth for more than 20 years – as noted 20 year US trend growth is 2.5% and 10 year trend growth is 1.7%. Nor, as illustrated above, would 3-4% GDP growth over the next couple of years reverse the long term slowdown of the US economy.

Speed of growth in previous US expansions

Indeed figures of 3-4% growth during recovery would be significantly below those experienced in US business cycles. For example, US GDP in the third quarter of 2010, the latest available data, was 0.6% below its peak in the 4th quarter of 2007 - i.e. after 11 quarters. By chance 11 quarters after the start of the US double dip recession of 1980 (in 4th quarter 1982), the previous most serious US post-World War II recession, US GDP was also 0.6% below its peak. The annualised growth in the succeeding quarters was then 5.0%, 9.0%, 7.9% and 8.3% – i.e. of a totally higher order of magnitude than the 3-4% recovery rates currently being projected in this US business cycle.

Even if the post-1980 cycle is discounted as being particularly strong, the post-1990 cycle saw three quarters with more than 6% annualised US GDP growth and six quarters additional quarters with more than 5% annualised growth – i.e. nine quarter of above 5% annualised growth. So “a number of quarters of 3-4% or more real GDP growth are likely in the next couple of years” would not represent a strong performance.

It is true that the post-2000 cycle only saw two quarters with more than 5% annualised growth but this precisely reflected the slowing of the US economy to the 2.5% 20 year average and 1.7% 10 year moving average. The projections made by Jim O’Neill would, therefore, not constitute strong US economic growth in historically comparative terms and would be insufficient to reverse the long term slowdown of the US economy. This is a more appropriate scale of comparison.

Glass half-full and glass half-empty

Finally, to summarise the importance of the necessary distinction between short term cyclical and longer term trends, the old analogy of a glass half-full or a glass half-empty might be used.

Taking first the “glass half-full”, the above data shows there is considerable potential for a near term US cyclical upturn even within the framework of a long term slowing of the US economy. If the reasonable assumption is made that the long term deceleration of US growth is determined by structural factors, and long term acceleration cannot occur without a change in these structural factors, then it is nevertheless clear from the above data that even without any structural changes US growth could average 3-4% over the next two years – i.e. such a growth rate would not require overturning the structural elements creating long term US slowing. This is simply because 3-4% growth over the next two years would actually be consistent with the pattern of long term slowing of the US economy, and would be weaker than in previous cyclical recoveries.

This, of course, is not a prediction that US growth over the next two years will average 3-4% – this depends on more short term factors. It is merely a statement that there would appear to be no element in the data on long term trends in US growth that would prevent an acceleration of growth to 3-4% over the next two year period. This might well have favourable consequences for US equity and other markets – that is, the short term cyclical pattern might be considered a “glass half-full”.

But the “glass half-empty” is that even growth rates of the 3-4% type projected over the next two years, or even for a four year period, would be insufficient to reverse the long term deceleration of the US economy. Only a US recovery at growth rates substantially above those currently projected, and/or sustained for significantly long periods, would reverse the trend of the long term slowing of the US economy.

Conclusions

What conclusions derive from the above? Two self-evidently “spectacular”  perspectives for the US economy, either a 1929 style depression or a post-1990 Japanese style stagnation, are not supported by the data. However a more “mundane” but significant one is. The US economy has been decelerating for several decades. None of the rates of growth presently projected for cyclical US recovery are sufficient to reverse this gradual but long term slowing of the US economy.

This result may appear more prosaic than some other scenarios, but given the central role played by the US in the world economy its results are likely to to be profound.

Gavyn Davies’ initiating of a thorough, and clarificatory, discussion on prospects for US growth is therefore very welcome.

The long term slowing of the US economy - and its implications

Summary

Current discussions on the US economy have tended to focus on shorter term issues - the likelihood, or otherwise, of a double dip recession, or perspectives of short term accelerations or decelerations in the US business cycle. These are significant issues. But they may obscure a more fundamental but less commented on trend – a long term deceleration of the US economy which has been under-way for several decades.

The long term annual growth rate of the US economy has slowed from its historical average of 3.4% to a 20 year moving average of 2.5% and 10 year moving average of 1.7%. As the US remains the world’s largest economy, and the single most important influence on international economic trends, the importance of such long term deceleration is self-evident.

This article focuses on establishing the facts of this gradual structural deceleration of the US economy. Further implications of this trend are considered in the conclusion of the article.

Background

To understand the significance of the long term deceleration of the US economy it is important to note that, in relative terms, the steady growth rate of the US economy was a central feature of the world economy for the last 120 years.

Taking the historical period 1889 to 2009, US annual GDP growth averaged 3.4%. As shown in Figure 1, with the exception of the fluctuations during and between World Wars I and II, a striking feature of US growth is its regularity. A virtual ruler might be placed along the US growth path for much of this 120 year period - a pattern strikingly differing from the majority of other economies.

Figure 1

Long term deceleration

Despite this considerable regularity in US economic growth a very gradual slowdown is visible in Figure 1. This trend may be seen more clearly by taking historical average growth rates over different periods to the latest available annual data - for 2009. Such long term growth rates, taken at 10 year intervals, are illustrated in Figure 2. The number of years indicated under the bars are the period over which the average growth rate is calculated up to 2009 and the percentages above the bars indicate the annual average GDP growth rate during the period.

Figure 2

 

Taking first the longest timescales, in the 120 year period 1889-2009, as already noted, annual average US GDP growth was 3.4%. During the 70 year 1939-2009 annual average US GDP growth was 3.6% etc.

Taking very long term 120 to 70 year periods, US growth rates remained essentially constant or arguably mildly accelerated - the lowest average annual growth in this period was 3.3% and the highest 3.6%.

From this point on, however, it may be seen from Figure 2 that US growth decelerates slowly but perceptibly and continuously. The 70 year annual average growth rate to 2009 (1939-2009) is 3.6%, the 60 year rate (1949-2009) is 3.3%, the 50 year rate (1959-2009) is 3.1%, the 40 year rate (1969-2009) is 2.8%, the 30 year rate (1979-2009) is 2.7%, the 20 year rate (1989-2009) is 2.5%, and the 10 year rate (1999-2009) is 1.9%.

The trend of deceleration is unequivocal. The US 10 year growth rate is now only slightly over half of the historical growth rate of the US economy. The more recent the period the slower the average US growth rate - i.e the US economy is decelerating with time.

As will be seen below, extending the data to the most recently available lowers the figures marginally further.

Recent trends

In order to illustrate post-World War II trends in the US economy more clearly, Figure 3 shows a 20 year moving average for US annual GDP growth - the 20 year period being chosen as sufficient to smooth out cyclical fluctuations. The calculation is for each quarter up to the most recently available data - that for the 3^rd quarter of 2010.

The gradual, but clear, downward trend in the rate of US GDP growth is evident. The 20 year moving average of annual US GDP growth fell from a peak of 4.3%, in the 2^nd quarter of 1969, to 2.5% in the 3^rd quarter of 2010. There was some recovery centred on the 1990s, although insufficient to regain previous growth rates, followed by a sharper decline to the most recent period.

If a 20 year moving annual average is compared at 10 yearly intervals, then the 20 year annual average growth to the 3rd quarter of 1970 was 3.8%, to the 3rd quarter of 1980 3.6%, to the 3rd quarter of 1990 3.2%, to the third quarter of 2000 3.2%, and to the 3rd quarter of 2010 2.5%.

In short the recent sharp deceleration of the US economy is an extension of a gradual but clear long term decline in the US growth rate.

Figure 3

 

In order to show the timing of the trend more clearly, Figure 4 superimposes a 10 year moving average US annual GDP growth on the 20 year moving average. Evidently a 10 year moving average shows greater fluctuations than the 20 year moving average, but the downward trend is also clear.

The 10 year moving average of US annual GDP growth has fallen from a peak of 5.0%, in the 2^nd quarter of 1968, to 1.7% in the 3^rd quarter of 2010. The deterioration due to the international financial crisis, of course, also shows more sharply using a 10 year moving average.

Figure 4

 

Implications

To summarise, the data clearly show a long term slowing of the US economy. The recent worsening of economic performance is not purely cyclical but is superimposed on a more long term slowing of the US economy. There are numerous implications of such a trend. Among these are:

1. It is significant to study short term fluctuations in the US economy, for example whether there will be a double dip recession (unlikely) or how strong will be the short term cyclical recovery. However a more fundamental trend is the long term slowing of the US economy.

2. As US GDP growth outperformed the other main developed economies in Europe and Japan in the most recent periods, but the US economy was itself slowing, this gap was wholly due to the poor performance of Europe and Japan and not acceleration in the US.

3. The lack of success of Reaganite/neo-Liberal policies in the US is evident from the data. Recent US growth rates are slower than those either in the period of "Keynesian" dominance of US economic policy, from World War II to the 1970s, or during US growth prior to World War II.

4. "New economy" claims, that is of a new period of rapid US growth based on Information Technology from the 1990s onwards, do not withstand statistical examination. Higher levels of US investment during the 1990s partially reversed  slowing rates of US growth but this was temporary, and was followed by a new decline of US growth to a lower level than previously.

5. Claims by economists, for example Barro, that "U.S. data do not reveal major changes... in the average rate of economic growth" are incorrect.¹ On the contrary, as shown above, the US economy is slowing with time.

6. Careful analysis must evidently be made, in the the light of data above, of figures used to project US economic growth. As the US is currently recovering from deep recession, above average trend growth would be expected in the immediate period. This would tend to lead statistically to convergence over the cycle to an average US growth rate. But what average should be taken? It would appear clear from the data above that taking a 3.4% historic US average GDP growth rate is too high. For example, should a 20 year average or a 10 year moving average be taken? As these are respectively 2.5% and 1.7% this is a significant difference.² 

7. The rapid growth decrease in the gap in total GDP between developing and developed economies clearly reflects not only acceleration in developing economies but also slow down in the most important developed economy, i.e the US.

As the long term slowing of the US economy is evident from statistical data, it must be integrated into analyses of both the US and international economies.

Notes

New deterioration in the US savings rate and its implications

The revised 3rd quarter 2010 US GDP figures show a downturn in the percentage of domestic savings in US GDP – see Figure 1. This shift is small, from 11.8% to 11.7% of GDP, but the trend is highly significant.

Figure 1

 

Figure 1 confirms the continuation of the long term downward trend of US savings, with inevitable oscillations in business cycles, since 1981. Each cyclical savings peak was lower than previous one – 21.4% of GDP in 1981, 19.0% in 1998, and 16.4% in 2006. Each cyclical trough was also lower than the one before – 14.2% in 1992, 13.6% in 2003, 10.2% in 2009.

A small cyclical recovery in US saving took place, from the 10.2% of GDP trough in the 3^rd quarter of 2009 until the second quarter of 2010 at 11.8%, and it is this which stalled in the 3rd quarter of 2010.

Even more striking is that the 3^rd quarter of 2010 is the 10^th consecutive three month period in which US net domestic savings, i.e. gross domestic savings minus capital consumption, has been negative – as shown in Figure 2. The last time US net savings were negative was during the Great Depression in 1931-34 - see Figure 3.

Figure 2

Figure 3

 

To put it in deliberately provocative, but accurate, language this means that the world’s number 1 capitalist economy has for the last 10 quarters not produced net capital – US capital creation is less than US capital consumption.

The implications of this new drop in the US savings rate, particular if maintained in coming quarters, are numerous. Two interlinked ones, with major implications for US economic performance, immediately stand out.

First, the core of the US Great Recession is a severe fall in fixed investment. Rapid US growth cannot take place without a sharp recovery in fixed investment - which in turn must be financed by savings. If US domestic savings remain depressed, then either US fixed investment will remain low, which implies a slow US upturn, or the US must finance a new higher level of investment from abroad – i.e. there must be a new widening of the US balance of payments deficit.

Second, one of the major theories of the international financial crisis, outlined most influentially by Martin Wolf, chief economics commentator of the Financial Times, was that it would lead to an overcoming of "global imbalances", that is the balance of payments deficit of the US and the surplus of China and other states, through an increase in US saving.

As the US balance of payments deficit, by accounting identity, is equal to the US shortfall of domestic savings compared to domestic investment, the US balance of payments deficit could decrease through either, or both, an increase in savings or a decline in investment. But, as shown above, US savings have stalled, and partially reversed, as a percentage of GDP at a historically low level. The improvement in the US balance of payments since the beginning of the international financial crisis is primarily due to a fall in fixed investment, not to a rise in savings. An analysis that international financial imbalances would be corrected via a rise in US savings has not been been factually confirmed.

These two issues are evidently interrelated. A major rise in US savings, which would permit an increase in US fixed investment simultaneously with a narrowing of the US balance of payments deficit, would provide the basis for relatively rapid US economic growth. The current factual trend, that of a continuing low level of US savings, does not permit rapid US growth except in conditions of worsening of the US balance of payments deficit.

The current trend of US savings therefore continues to point to relatively slow US growth unless the US is prepared to permit a significant deterioration of its balance of payments position - i.e. a new, and in the long term, unsustainable worsening of global imbalances. Short term fluctuations in US growth must therefore be judged against this strategic background.