August 21, 2014 1:03:12 am
China’s economy is slowing. The euro zone’s is a flat line. Japan’s sank in the second quarter. Britain has wage deflation. The US economy is ticking over at best.
In a world preoccupied by geopolitical crises — from Ukraine, Iraq and Gaza to the Ebola outbreak in West Africa — the global economy has taken something of a back seat. But there are increasing signs it is in trouble despite being awash with cash from record low interest rates.
Many policymakers across the world would like to move away from this ultra-loose monetary policy, which they introduced to drag their countries out of the financial crisis. But the economies are not playing ball.
Essentially, the economic doldrums have pushed back the time when central banks can start the process of normalising monetary policy. Indeed, in many places it is more likely that central banks will loosen more than pull in.
Take China. Data in July showed cash flowing into the economy plunging to a near six-year low. The housing sector, around 15 per cent of the world’s second largest economy, is also faltering.
So although overall growth projections for the year remain roughly on track, the latest data has brought the potential for looser Chinese monetary policy.
In a similar vein, the issue in the moribund euro zone is not one of reining in monetary largesse but of whether the European Central Bank should extend it by buying government bonds in a quantitative easing programme.
The bank has already thrown more than 1 trillion euros ($1.34 trillion) into the economy, much of it repaid, and is poised to inject up to another 1 trillion euros if necessary. Yet there was no growth across the 18-country bloc in the second quarter and inflation is running at a deflation-threatening 0.4 per cent.
“The risks surrounding the economic outlook for the euro area remain on the downside,” ECB President Mario Draghi had said.
“There is no country (now) to pick up the slack,” said Jacob Funk Kirkegaard, a fellow at the Petersen Institute of International Economics. “From the perspective of the US consumer coming to the rescue of global demand, forget about it.”
That was underlined by the latest US jobs data, which showed steady job creation but flat wages in the private sector and little improvement in long-term unemployment.
Britain, the fastest-growing G-7 economy this year (albeit from a low base), is in a similar place. Minutes of the central bank’s last meeting showed the first split vote on interest rates since 2011.
The G7 as a group is also growing well below trend. The United States, Germany, Japan, France, Britain, Italy and Canada averaged growth of just over 2 per cent a year between 1981 and 2013. The projection for this year is less than 1.5 per cent. There has been little so far on the horizon to change this.
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