Since 2010, annual growth in both advanced economies (AEs) and emerging markets and developing economies (EMDEs) has fallen serially. It is far from clear whether it has bottomed out as the International Monetary Fund’s (IMF’s) current projections, notorious for subsequent downward revisions, for 2014 indicate. In 2013, AEs grew at less than 50% of the 15-year average up to 2007. EMDEs grew at 4.6%, or at around the 10-year pre-boom average of 1994-2003. It is important to remember that the sustainability of even this tepid recovery is untested, based as it is on extraordinary fiscal, and especially monetary, life support.

All major economic zones of the global economy are struggling. What seems like a robust revival in one quarter quickly yields to gloom in the next. Abenomics is struggling in Japan as the crucial third arrow of promised bold structural reforms is still to fire; the euro zone is struggling as major economic and financial fault lines deriving from an unstable monetary union have been bared by markets; the US and China, the relatively strong nodes of the global economy, need major structural changes to rebalance their economies, externally and domestically—US needs to save more, and become more competitive, and China needs to expand domestic demand—for a sustainable recovery; the serial growth decline in EMEs has still to bottom out, even as the “Fedexit" and interest rate “pivot" hang like the proverbial sword of Damocles overhead.

The economic boom of 2004-07 preceding the global financial crisis was mostly an EMDE phenomenon. They grew at an average of 7.9%, pushing global growth upward of 5% compared to the 1994-2003 average of 3.5% in what came to be described as the “Great Moderation". AEs continued to grow just below 3% during this entire period. This boom was unsustainable as it was not driven by investment and income growth in AEs but by leveraged consumption, as both real wages and jobs growth remained stagnant. This consumption growth was facilitated by easy monetary policies, financialization and outsourced production to EMDEs where large productivity shifts were taking place. This put downward pressures on consumer prices, led to mounting external imbalances and a savings glut as consumption growth in EMDEs did not rise commensurately.

This model of growth collapsed with the global financial crisis (GFC). The contours of new engines of growth are still unclear. Meanwhile, several of the infirmities of the Great Moderation have not only re-surfaced but may have actually intensified.

First, the global savings glut has been compounded after the crisis by extra-accommodative monetary policies which, as before, are fuelling asset rather than investment booms.

Second, with asset prices unusually buoyant considering the depressed state of the economy, the disconnect between asset and consumer prices is now compounded by the disconnect between economic growth and financial markets.

Third, stagnant real wages and “jobless growth", in particular falling labour participation rates, continue to depress consumer demand in advanced economies. The resultant growing inequality has only been compounded by ultra-easy monetary policy that rewards asset owners over savers.

Fourth, fiscal headwinds emanating from demographic transition prior to the crisis have only picked up speed with lower growth and the strong fiscal response to combat the crisis.

Fifth, high levels of leverage in the economy have not unwound, as the accelerated build up in public debt has countervailed private sector deleveraging.

Sixth, it is not clear that regulatory reform has made financial markets less risky, as Basel III retains pro-cyclicality through retention of the mark-to-market mechanism, and as shadow-banking, the source of financial instability in the GFC, has rebounded at the expense of the more tightly regulated component.

Seventh, the structural flaws in the European Monetary Union that were always latent have now been uncovered by markets that can now be expected to revolt periodically, keeping the union in a constant state of instability.

Eighth, the external demand rebalancing problem is now been compounded by the need for internal rebalancing of economies from public to private demand.

The common theme running through all these impediments to growth in major economic zones is the need for far reaching structural reforms. Thus far policymakers have mostly let macroeconomic policies, especially monetary, do the heavy lifting. But macroeconomic policies can only fix cyclical downturns and not structural impediments to growth. The G-20, which famously coordinated the rescue from the global financial crisis, is now attempting to coordinate and nudge countries to carry through difficult structural reforms to drive up global growth. This “Brisbane Action Plan" is expected to be the centrepiece of the Leaders’ Declaration at the forthcoming ninth G-20 Summit in mid-November 2014. But such reforms are ultimately dependent on domestic political appetite rather than on non-binding commitments in plurilateral fora. The appetite for deep-seated land, labour and product market reforms seems to be by and large weak currently, as democracies will try everything else first, and lower growth alone may not spur them into animated action. Therefore, until a dynamic new engine of growth emerges the global economy, including emerging markets, may well be headed for a “Great Stagnation" in sharp contrast to the recent Great Moderation.

Alok Sheel is a civil servant.These are his personal views.

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