AM 1150 Kelowna - Radio Rallies & Reversals

For all you economic enthusiasts out there, let's review the following formula:

GDP = C + I + G + (X - M)

or

GDP = Consumption + Investment + Government Spending + (Exports - Imports)

If you're trying to figure out the macro trend ahead, this is a great formula to look at, as it will focus your attention on some key variables. Prior to the recent recession, economic growth was fueled by consumption, which in turn was fueled by lax lending standards and cheap money. Since the recession, economic growth has been fueled by government spending, but for those of you who followed the recent G20 summit in Toronto this past weekend, that's about to change.

Our global leaders have agreed, in principle, that tougher austerity measures are warranted. With unemployment still high, housing about to fall off another cliff, and the specter of higher taxes on the horizon, consumer consumption isn't looking like our savior.

Big business says it will help with investment if government will go easy on regulatory reform. This is a discussion for another time.

That leaves net exports - No wonder the markets rallied a week before the G20 Summit when China announced it would allow the Yuan to appreciate, then subsequently fall when China's leading economic indicator for April was revised down.

GB