Global economic recovery has taken now 10 years and is still wobbly

IN MAY 2007, Ben Bernanke, then chairperson of the Federal Reserve, said the problems in the US subprime mortgage market probably would not hurt the economy or the banking system. With the admittedly huge benefit of hindsight, that was a misjudgment of epic proportions.

It has taken a full 10 years since the onset of the global financial crisis for the world economy to show clear signs of recovery, and even now progress remains halting.

In the US, the unemployment rate is at its lowest in a decade, but pay is growing only slowly and a string of recent economic data has been weaker than expected.

In Europe and Japan, growth is picking up speed, prompting the European Central Bank and the Bank of Japan to start sending signals about eventually easing their economies off their huge stimulus programme.

But in Europe, Greece’s debt crisis remains far from over, even if the rest of the euro zone might help clear the way for more relief at a meeting of finance ministers today.

And although France voted in a centrist leader rather than a far-right populist this month, new President Emmanuel Macron may struggle to command a majority in parliament after elections in June. Investors remain nervous, too, about the prospects for euro-sceptic parties in elections in Austria this year and in Italy by May next year.

In Asia, China has smoothed trade tensions with the US, at least for now, but the world’s second-biggest economy is still trying to rein in its shadow banking system.

And while emerging economies may ride on the coattails of global growth, there are glaring exceptions such as recession-hit Brazil and South Africa which are both in the grip of political crises.

Group of Seven finance ministers and central bank governors sounded only cautiously confident as they wrapped up a meeting on May 13 in Italy.

“I think a light wind of optimism was blowing at Bari,” Bank of France governor Francois Villeroy de Galhau said in the southern Italian port city. “But let’s be clear, it’s a light breeze not a powerful wind.”

The most pressing question for most of the G7 was how far US President Donald Trump would go to remove the world’s biggest economy from trade deals, water down global banking rules or pump up the dollar by turbo-charging the economy.

That was before media reports that Trump had tried to stop an investigation into ties between his former national security adviser and Russia.

The crisis in Washington triggered a rout in financial markets as investors all but gave up hope of Trump pulling off his ambitious tax cuts. – Reuters