Financial superheroes encounter kryptonite
One of their number even earned the nickname “Super Mario.” But the world’s financial heroes aren’t invincible. Finance ministers and central bankers who attended last week’s International Monetary Fund annual meeting have found their kryptonite: It’s gravel in the gears of world trade. This friction is one of the main reasons why the multilateral lender’s new boss, Kristalina Georgieva, expects the weakest world GDP growth in a decade this year, at 3 per cent, with 90 per cent of the global economy expanding more slowly than last year.
There were glimmers of hope during the meetings in Washington, like signs of a temporary truce in the Us-china trade row and fresh potential for Britain to avoid a chaotic European Union exit. But Bank of England Governor Mark Carney on Friday articulated what’s jangling nerves.
He told a packed hall that for the first time in 16 years of attending the meetings he was seeing an “almost existential uncertainty” about the structure of the trading system.
Fixing this problem is beyond the prowess of finance ministers and even once-mighty central bankers. That’s less because commerce is technically outside their remit. Rather, US President Donald Trump’s readiness to slap tariffs on allies, for example in Europe, as well as on pricklier counterparts such as China, has turned trade into a political hot potato best left to heads of government.
Finance officials are flexing what muscles they can. Major central banks, including in Europe and the United States, have eased monetary policy preemptively. IMF Chief Economist Gita Gopinath estimates that without such action, global growth would have been another 0.5 percentage points weaker.
But with policy interest rates low everywhere and in some cases negative, there is less room than usual. And persistently easy conditions may create bubbles in parts of the economy and financial markets.
Reserve Bank of Australia chief Philip Lowe on Thursday said publicly what some of his peers admit in private: Monetary easing now has diminishing returns and the solutions may lie elsewhere.
More expansive fiscal policy could shoulder some of the burden, for example in Germany, which has been running budget surpluses. But this will only ease the symptoms of what’s ailing the global economy. The real quest is to get trade flowing freely again. But that’s not in the former superheroes’ power.
FINANCE OFFICIALS ARE FLEXING WHAT MUSCLES THEY CAN. MAJOR CENTRAL BANKS HAVE EASED MONETARY POLICY PREEMPTIVELY