The breadth of the latest slowdown is disconcerting
May 11th 2013 | WASHINGTON, DC |From the print edition
THE global economy seemed bound for a shaky start in 2013, with fiscal cliffs lurking in America and a chronic crisis in Europe. Yet things could have easily turned out worse. America’s politicians bungled about, but avoided disaster. Despite a messy bail-out in Cyprus, government-bond yields across the troubled euro-zone periphery are falling. The world has been mercifully free of seismic catastrophes and soaring oil prices.
That good fortune has not prevented a broad slowdown. Global growth sank below 2.5% in the second half of 2012. A small rebound at the start of 2013 appears to have faded. First-quarter GDP reports disappointed in America and China. Unemployment in Europe ticks relentlessly upwards. And in April an important index of global economic activity sank to its lowest level since last October, suggesting that the world economy is barely managing to grow (see chart).
Europe is in the roughest shape. The euro area has been in a double-dip recession since late 2011 and its downturn intensified in the final quarter of 2012, when output fell by 0.6% from its level in the third quarter. Despite some signs of revival in Germany, official figures due on May 15th are expected to show that the euro-zone recession continued in the first three months of 2013. Business surveys suggest the decline has persisted into the current quarter. An index of output in private services and manufacturing (where 50 is the dividing line between contraction and expansion) stood at 46.9 in April, reported Markit, a research firm, this week.
The euro zone’s fragility owes something to austerity, though fiscal retrenchment will be less intense this year. Financial conditions also matter. Though improved since Mario Draghi, the president of the European Central Bank (ECB), pledged last July to do “whatever it takes” to save the euro, bank credit remains tight in southern Europe. Borrowers there will get little help from this month’s 0.25 percentage-point cut in the ECB’s main policy rate, to 0.5%. The euro zone will continue to look to export demand for salvation.
That may prove a vain hope. The days of double-digit growth in China are over: it managed growth of just 7.7% in the first quarter and new data suggest the slowdown continued into April. That will make life harder for countries like Germany, which export a lot of industrial equipment to China. Japan’s economy seems to be rebounding thanks to the stimulus provided by the policies of Shinzo Abe, the prime minister, but vigorous monetary expansion has sent the yen tumbling against the euro, making life more difficult for European exporters. America’s economy has proved surprisingly resilient in the face of budget cuts and tax hikes. But it does not seem ready to resume the role of global consumer of last resort.
Even though economic troubles look relatively modest outside the euro area, the breadth of the slowdown is disconcerting. With so many parts of the world economy performing below expectations, it is hard to see where an engine of global demand might emerge and easy to imagine how things could go wrong.
Still, the slowdown may not turn into a stall. America’s economy is likely to accelerate in the second half of the year as the pressure of austerity recedes. Euro-zone leaders seem prepared to give the periphery more time to meet fiscal goals. And the ECB’s return to a more expansionary policy may take a little pressure off the struggling economies. There are signs of improvement in Britain and parts of Latin America as well. The IMF’s latest forecast revised down projections of global growth this year, but nonetheless predicted a better performance than in 2012.
From the print edition: Finance and economics
