World economy on the up

World economy on the up

31 March 2017

 

Almost ten years after the most severe financial crisis since the Depression, a broad-based economic upswing is at last under way, claims The Economist. In America, Europe, Asia and the emerging markets, for the first time since a brief rebound in 2010, all the burners are firing at once.

Fears about Chinese overcapacity, and of a yuan devaluation, have receded. In Japan in the fourth quarter, capital expenditure grew at its fastest rate in three years. The euro area has been gathering speed since 2015; euro-zone unemployment is at its lowest since 2009.

The bellwethers of global activity look sprightly, too. In February, South Korea, a proxy for world trade, notched up export growth above 20%. Taiwanese manufacturers have posted 12 consecutive months of expansion. Even in places inured to recession the worst is over.

The Brazilian economy has been shrinking for eight quarters but, with inflation expectations tamed, interest rates are now falling. Brazil and Russia are likely to add to global GDP this year, not subtract from it.

The Institute of International Finance reckons that in January the developing world hit its fastest monthly rate of growth since 2011.

This is not to say the world economy is back to normal. Entrenching the recovery calls for a delicate balancing-act.

Economists have long argued that recoveries from financial crashes take a long time: research into 100 banking crises by Carmen Reinhart and Kenneth Rogoff of Harvard University suggests that, on average, incomes get back to pre-crisis levels only after eight long years.

Most economists also argue that the best way to recover after a debt crisis is to clean up balance-sheets quickly, keep monetary policy loose and apply fiscal stimulus wherever prudently possible.

Today’s recovery validates that prescription.

Populists politicians and their policies deserve no credit for the upsurge. But they could yet snuff it out.