What can governments do about global economy’s slowdown ?
Central banks are getting twitchy. On average, recessions have come along once a decade since the mid-1970s and the nadir of the last downturn occurred almost a decade ago.
The Nobel prize-winning economist Paul Krugman has predicted that there will be a recession in America by the time Donald Trump comes up for re-election at the end of next year.
The darkening outlook for global growth is putting pressure on the US president to resolve his trade dispute with China. When the White House announced its first tranche of protectionist measures almost a year ago, hopes were high that the world economy had at last shrugged off the long hangover from the financial crisis and deep slump of 2008-09. In the months before Trump went toe-to-toe with China’s president, Xi Jinping, it was expanding strongly and the International Monetary Fund was talking about a synchronized upturn. A year later — and with the March 1 deadline for a fresh round of US tariffs fast approaching — the mood has changed. All of which raises big questions.
What is happening to global economy?
Official statistics in the US have been delayed as a result of the federal government shutdown, but when the figures for growth in the fourth quarter of 2018 are finally released this week, they are expected to show that the world’s biggest economy has joined in a slowdown that is affecting Europe, China and a slew of other strategically important countries.
If the second half of 2018 provided isolated evidence that global growth had peaked, the data since the turn of the year has been unambiguous: all of the world’s major economies look weaker than they did 12 months ago. Britain grew by just 0.2 percent in the final three months of 2018, as did the eurozone. And Italy is suffering its fifth recession in two decades.
Spending by American consumers in December was weak, but perhaps of more significance was the sharp pull-back in manufacturing in January, which fits with a picture of declining factory output elsewhere. In the winter of 2008, crashing industrial production and a contraction in trade flows were signs of the depth of the global slump. Ominously, both are again weak.
For countries heavily dependent on exports as a source of growth — China, Germany, Japan and South Korea — falling demand for their goods is bad news.
Globalization has increased the tendency of one economy to be synchronized with all the others: there was a generalized upswing in the 1990s when China was a destination for western foreign investment, a growing market for exporters of commodities and industrial machinery, and the source of cheap goods that kept inflation and interest rates low.
But the flipside of this model is that everybody suffers together when times are tough. While spectacular by western standards, China’s growth of 6.6 percent in 2018 was the slowest since 1990, and weakness intensified as the year wore on.
China has been a key export market for Germany, which has only barely escaped falling into a technical recession — defined as two successive quarters of negative growth. The latest snapshot of manufacturing in Japan pointed to a contraction in factory output.
Announcing the International Monetary Fund’s latest forecasts for the world economy in Davos last month, the fund’s managing director, Christine Lagarde, said that while a recession was ‘not around the corner’, the risks of a sharper decline in activity had increased. Policymakers should make greater efforts, Lagarde added, to prepare for a slowdown.