Worldwide trends lead to uncertain economic outlook


Issue Date: November 9, 2016
By Dennis Pollock

Global uncertainty fueled by contentious U.S. elections, Britain's Brexit vote and a lack of growth in national economies formed the theme for the opening talk at an annual agribusiness conference in Fresno.

Terry Barr, chief economist with CoBank—a cooperative bank that's part of the Farm Credit System—said agriculture needs export markets, not retrenchment from trade, but that he sees nations "backtracking with regard to interdependence."

"There is a lack of political leadership across the world, and both candidates (for U.S. president) are anti-globalization," Barr said at the 35th Annual Agribusiness Management Conference, presented by the Fresno State University Institute for Food and Agriculture.

He pointed out that between 70 percent and 80 percent of tree nuts go overseas, pork exports are at 20 percent and dairy's reach is increasingly global.

Barr said anti-globalization worldwide "is not a good sentiment; it's one of the drivers that slows down the adjustment process going forward."

He said the anti-globalization sentiment goes well beyond U.S. borders to countries that include Germany, France and the United Kingdom, which is withdrawing from the European Union. He said 2017 elections in France and Germany will be divisive, "with rising anti-globalization sentiment."

He also cited European nations continuing to face a debt crisis.

Barr said Japan is likely to continue a slow annual rate of economic growth of less than 1 percent for several years, and Chinese growth will likely remain subdued as the country pursues a consumer-led economy.

"China's corporate debt is at potentially dangerous levels," he said. "There is vulnerability in the financial system and shadow banking sector."

He pointed to high government debt relative to gross domestic product in the United States and elsewhere, and said he expects the growth rate globally for the next two or three years will be at a "sub-par" 3 percent.

Barr said an increase in the value of the U.S. dollar brings a rise in prices for the nation's exports.

"Declining capital inflows and continuing geopolitical turmoil have generated significant currency volatility," Barr said, adding that central banks worldwide are having difficulty coordinating policy moves.

"The global economy can't avoid major structural and geopolitical issues forever," he said. "Markets don't like question marks."

Barr said declining commodity prices and reduced natural resource trade volumes have undermined emerging market growth, pointing out that U.S. fruit and nut price gains have been slow as a result of increasing supplies, a strong dollar and competition.

Not all was doom and gloom. Barr pointed out that hourly earnings are improving in the United States, but lagging a consistent decline in the unemployment rate. Consumer net worth is up. Auto sales have recovered slightly but are beginning to plateau.

"There is not a robust housing market," he said, though he noted housing sector gains in 2016 in the Midwest and West.

Barr said the aging of populations in advanced economies is having a negative impact: "The rest of the world—not advanced economies—is now driving growth."

Social Security, Medicare and Medicaid are consuming a larger share of the U.S. budget.

He made it clear he did not believe the uncertainty in leadership would be resolved by the 2016 presidential election, citing, for example, unanswered questions about leadership of the House of Representatives and the U.S. Senate.

Though the 115th Congress will seek a more bipartisan approach, he said, a bitter election may limit the chances of that happening. He said he believes legislative progress on tax policy, entitlements and other issues will be deferred to the next Congress.

"Election results and budget pressures will complicate 2017 policy options," Barr said.

And in 2018, he added, control of the Senate will be back in play, with Democrats needing to defend 25 seats and Republicans defending eight.

Barr opened the conference by speaking on "Political and Economic Turmoil Shaping Outlook." The event closed with Sacramento Bee columnist Dan Walters, speaking on "Election Year Politics in California Agriculture."

Walters said agriculture has long been in the forefront of political reform, going back decades to opposition to the Southern Pacific Railroad and before, and continuing as some growers today oppose high-speed rail. He said agriculture played a significant role in adopting political movements that put reforms into the state's Constitution that included language on the initiative, referendum and recall processes.

Walters noted that during a period in the 1980s and early 1990s, eight of 10 presidential, gubernatorial or U.S. Senate races were won by Republicans. Things changed in the mid-1990s, he said, with the loss of military contracts after the end of the Cold War, the collapse of the aerospace industry and an influx of immigrants.

As party registration has shifted, Walters said, "The broader business community has been quite successful in forging a bloc of moderate Democrats, particularly in the Assembly. People call it the Mod Squad or BDs, for 'business Democrats.'"

(Dennis Pollock is a reporter in Fresno. He may be contacted at agcompollock@yahoo.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.