Is secular stagnation over for the world economy?
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Ten years after the global financial crisis first raised its ugly head in the shape of the subprime housing crisis in the US, the global economy finally seems to be on the mend.
The JP Morgan Global All-Industry Output index, which incorporates both global manufacturing as well as services sectors, saw good growth in the June quarter, which, together with upbeat numbers for the March quarter, make it, according to the Purchasing Managers’ index, “the best quarters of growth registered by the global economy over the past two years”. Talk of “secular stagnation” has thankfully receded.
Joseph Lupton, global economist at JP Morgan, says: “The broad and self-sustaining nature of the expansion leaves the global economy well positioned for continued solid gains in the second half of the year.”
The accompanying chart’s “Future Output” trajectory, a measure of business confidence, reflects that optimism.
Even the Bank for International Settlements now believes growth has gathered momentum, though it cautions that “sentiment has swung even more than facts”.
It points out that “despite the best near-term prospects for a long time, paradoxes and tensions abound. Financial market volatility has plummeted even as indicators of policy uncertainty have surged. Stock markets have been buoyant, but bond yields have not risen commensurately.
And globalization, a powerful engine of world growth, has slowed and come under a protectionist threat”.
That’s not counting the continuing uncertainty on Trump’s policies, the shrinking of central bank balance sheets in advanced economies and a probable slowdown in China.
As the chart shows, there have been false dawns earlier.