A lost decade sounds like a throwback to the drug-addled 1970s, when rockers lost their minds and their memories through over-indulgence in drugs, booze and hookers. Some say that if you can remember the 1960s, then you weren't really there. However, the proverbial 'lost decade' of this month's Last Word is less about LSD and 'free love,' and is more about the less sexy concepts of deflation, productivity gaps and economics.
Japan is often held up as the prime example of a country that has suffered a 'lost decade,' (or 'Ushinawareta Jūnen' in Japanese1). The slump originated in a massive property and asset-price bubble in the 1980s which spectacularly deflated starting in 1989. Japan's 'lost decade' is not quite correct, since its period of low inflation/deflation and low demand/low growth has now lasted 20 years (depending on how you look at the numbers), despite multiple stimulus bazooka strikes from successive governments, including the massive efforts of the Abe government over several years. Japan's economy is still in a tough place: more highly indebted than ever, with a shrinking and aging workforce and with historically low levels of demand. Japanese people are savers, not spenders, even though a dose of consumer demand is possibly one of the things that is needed for Japan to shake itself from years of relative torpor. Interestingly, if Japan's GDP /working-age inhabitant is graphed then the 'lost decade' is much less apparent. In this case, however, we should all be aware that Italy, Russia and China (among other countries) have some of the fastest-aging populations in the world - with the corollary of similarly bad economic news around the corner.
Southeast Asia - including the former 'Tiger Economies' - strictly Singapore, Hong Kong, South Korea and Taiwan - and the 'Tiger Club' countries of Malaysia, the Philippines, Thailand and Indonesia - experienced its own 'lost decade,' (perhaps 'half decade' might be a better term) starting with the Asian Financial Crisis of 1997. The crisis originated in Thailand (where it is known as the Tom Yum Goong Crisis, named after a tasty hot and sour soup) after a property bubble collapsed, before contagion took the financial crisis around Asia. What started with currency speculation and currency depreciation rapidly transmogrified into real-world turmoil, with the construction sector (including wallboard and insulation) badly hit in most countries. Cash- (or credit-) rich Europe-based multinationals made the most of the Asian Crisis to buy assets as cheaply as possible. The Asian countries were able to pursue a variety of policies, including planned currency depreciations and capital controls, that allowed them to stabilise their financial sectors (with the aid of some huge bailouts from the IMF), which led in a few years to greater economic stability and the current growth phase.
Arguably, the US went through its own lost decade starting in 2005 (or did it start back in 1999 with the bursting of the tech bubble, when everyone said 'This time it's different,' and it wasn't?). In the latest bust, over-valued property saw a sharp correction in prices downwards, the construction industry once again screeched to a halt and there was the high-profile collapse of several financial institutions. With the eye-watering Great Recession starting in 2007 - 2008, we saw the sharpest US fall in GDP for nearly 80 years, with the country losing 9 million jobs and more than 5% of its GDP. Once again, wallboard and insulation were badly hit, with plant closures and project delays. For good or bad, the US has been aggressive in its stimulus measures, pumping around $4.5 trillion into the financial system in the seven years since the crisis hit. Arguably, this has led to the start of the inflation of the next bubble, but it has certainly helped to boost the real economy in the meantime, with US GDP growth now above 2% year on year (but now stuttering somewhat).
Alas, poor Europe. The continent has suffered some of the same problems as the US, with over-building of housing, weak (arguably criminal) financial institutions and a collapse in consumer confidence. The building materials industries of many countries have had to cut back capacity to 'post-apocalyptic' levels, sometimes to less than half of pre-crisis values. The region is hobbled by a one-size-doesn't-fit-all currency, antediluvial labour laws and stagnating (or reducing) productivity. Countries cannot resort to competitive devaluations - as they have around the world, including in the UK which is not part of the EuroZone but is still part of the EU (for now). With a Grexit now nearly inevitable, the EuroZone's weak economic performance looks set to continue - potentially even beyond a 'lost decade.' That is bad news for everyone - for building materials producers, for equipment manufacturers and for all the rest. Can you see a clear way out of this mess? I confess that at the moment, I cannot.
1 http://en.wikipedia.org/wiki/Lost_Decade_(Japan)
2 http://en.wikipedia.org/wiki/1997_Asian_financial_crisis
