On the Road to Zero Growth (GMO)


Today, I believe that resource prices probably still have about 20% fat in them, representing short-term supply catch-up, some judicious foot dragging in increasing supply, some speculation, and, more recently, a decline in Chinese growth, which seems very likely to settle onto a materially lower trend in the intermediate term of, say, 5% or 6% a year. (In this my colleague Edward Chancellor appears to have been completely right, although either he was early or the Chinese were slow to admit reality.) To capture this I am mentally allowing for a further decline of 20% in all commodities including grains, where I cannot get my brain around the idea of a fourth consecutive terrible global growing season! However, even after an imputed 20% markdown, the prices will still have doubled in 10 years or compounded at 7% a year. This is far higher than global GDP growth and painfully higher than growth in the U.S. or other developed countries. This 7% a year increase, in my opinion, represents a paradigm shift in costs.


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