Issue of the week: springtime for the world economy?
Global stock markets are riding high and the world economy is improving. Does the recovery have legs?
“Vive L’europe,” said Daniel Grote on Citywire. The “relief rally” that swept through European markets following the first round of the French presidential election swiftly went global. The FTSE 100 enjoyed its biggest daily rise since September; New York’s Nasdaq index hit a record high, as did the MSCI gauge of global stocks. The rosy outlook also found expression at the International Monetary Fund’s gathering in Washington DC last week, where finance ministers and economists were in positively buoyant mood, said Szu Ping Chan in The Daily Telegraph. Gone were last year’s warnings of a “new mediocre”. For the IMF’S managing director, Christine Lagarde, spring was in the air “and in the economy as well”. Recovery looks to be broad-based: with Brazil and Russia finally “emerging from deep recessions” and growth in the eurozone picking up. “No major economy is expected to contract this year.”
“April is the cruellest month, breeding lilacs out of the dead land” and “chirpy forecasts from the IMF that often prove a bit too chirpy”, said The Economist. The fund has raised its forecast for global growth in 2017 to 3.5%. But since it has revised down its forecasts “every year since 2010”, there is reason for caution. “Growth forecasts for the emerging world have not changed.” Indeed, the IMF’S “global optimism is based instead on hopes of increased growth in the rich world”. It takes a glowing view of the US economy, “citing both high levels of consumer confidence and Donald Trump’s plans for more government spending”. It reckons that Britain will grow by 2% in 2017 – up from earlier estimates of 1.5%. Even so, the global economy may yet “falter”. Among the risks cited by Lagarde are worries that the rich world will suffer “self-inflicted wounds” from poor policy choices, notably on trade; and continuing “political uncertainty”.
“The most important reason for the recovery is that three successive shocks – the financial crisis of 2007-09, the eurozone crisis of 2009-13, and the commodity price falls of 2014-15 – are moving well into the past,” said Martin Wolf in the FT. “We may at last be seeing the end of the post-crisis malaise.” But there remain “significant downside risks”. In the US, overoptimistic predictions could be used to justify “excessively expansionary fiscal policies”, causing a “destabilising boom”. In China, growth remains “credit dependent”. Meanwhile, the backlash against globalisation in high-income countries is “real”. There is now “a reasonable chance” of a global recovery, but “turning that into something more durable will mean a delicate balancing act” – and much depends on policymakers. “The upswing is an opportunity”, but if it is not exploited it “could prove just a temporary upward economic blip”.