Warning: Intoxicating optimism
Idon’t want to freak people out but as we head into 2018 the global economy appears to be in very good shape. Things haven’t looked this rosy since the start of 2007.
Scary stuff — we know what happened next.
But let’s bask in it a while. New reports by the World Bank, International Monetary Fund (IMF) investment banking giant Goldman Sachs and numerous others all point to 2018 as the year that finally shakes off the shadow of the global financial crisis (GFC).
That’s the backdrop for discussions at the World Economic Forum this weekend — the meeting of financial leaders at Davos in Switzerland, the biggest pow wow on the annual calendar.
It’s a long time since we’ve seen stable growth out of the US, Europe, Japan and China at the same time.
In fact, according to the Economist only four places in the world will be in recession this year — Venezuela, North Korea, Equatorial Guinea and Puerto Rico.
Of those only North Korea and its missiles presents a serious challenge to the global good times.
What about the threat of nuclear war, terrorism, global warming and crazy American politics, you may ask?
It’s true, world news remains far from a barrel of laughs.
But money markets have more or less stopped paying attention — they are in party mode.
Wall Street has had its strongest start to a year since 1999.
The bull run is heading into its ninth year.
Unlike in 2007, though, there’s no shortage of contrarians picking the end is nigh.
At Davos, Professor William White — a former central banker and economist — grabbed headlines with a gloomy prediction we’re back into territory that preceded the GFC.
White warned of an “intoxicating optimism”. He sounds like he’d be fun at parties.
Market watchers have also described the rip-roaring start to the year as a “meltup” — that is, the boilover of exuberance that precedes a meltdown.
One difference this time is that fervour could be underpinned by real economic growth.
If the world’s big nations can fire on all cylinders this year we could finally see productivity gains and wage rises.
We’re into what some economists call the Goldilocks zone — everything is just right.
That would allow a stable transition back to normal interest rates and away from post-GFC stimulus.
I really hope we can stay there for a while. Another financial crash while interest rates are still low leaves central banks with very little fire power to rescue the world next time.
Meanwhile, New Zealand has in been a cyclical economic upswing for a few years. We’re ahead of the curve — the rockstar economy.
That 2018 is forecast to be the year that the rest of the world catches up is very good news for our new Government.
It means there will be fair winds to implement some of structural reforms it campaigned on.
And the Government will be right on trend. The IMF has practically written the brief for it in its 2018 outlook report.
“The current cyclical upswing provides an ideal opportunity for reforms. Shared priorities across all economies include implementing structural reforms to boost potential output and making growth more inclusive,” the IMF says.
In fact, if New Zealand dovetails on strong global growth for the next year or so, this current economic cycle threatens to be one of most stable we’ve seen since the 1960s.
To use an old phrase — we need to make hay while the sun shines.
The World Bank’s outlook report was snappily titled: Broad Base Upturn — Will it last?
Goldman Sachs chief economist Jan Hatzius describes the global economy as “about as good as it gets”.
Bad times are easy to recognise but good times are easy to take for granted unless you stop and pinch yourself.
So how should we cope with all this cheer?
If things aren’t going well — if you’re
It’s a long time since we’ve seen stable growth out of the US, Europe, Japan and China at the same time.
struggling to make your business work or your career soar — you probably need to take a look inwards.
Until the pessimists get their day, blaming the economic cycle for your woes is off the table. Which means your problems are probably structural.
I think our Government gets it. National did well through the downturn but is vulnerable to criticism it took too long to see the clouds had cleared.
Bill English would no doubt argue his policy was shifting to a more expansive place with more focus on social investment. Certainly Labour and National campaigned on policy platforms relying on a continuation of benign economic conditions to succeed.
The global economy in 2018 looks good to provide those conditions. If there’s a downside for the new Government, it’s there is no room for excuses.
They have money in the tank and the opportunity to spend it in ways they believe will address equality and drive future growth.
The pressure is on to perform, to execute well. Opportunities like this are rare. They only come along once or twice in a generation.
New Zealand can’t afford to blow this one.