News

Rich Nations Unprepared for the Next Economic Downturn

The first paragraph of a June 13 Economist piece proclaims victory over deflation:

THE struggle has been long and arduous. But gazing across the battered economies of the rich world it is time to declare that the fight against financial chaos and deflation is won. In 2015, the IMF says, for the first time since 2007 every advanced economy will expand. Rich-world growth should exceed 2% for the first time since 2010 and America's central bank is likely to raise its rock-bottom interest rates.

Well, economic growth forecasts may not pan out.

Six years after the financial crisis, the economic "recovery" remains the weakest on record despite massive stimulus from central banks.

In the U.S., for example, long-term weakening is evident in GDP growth, retail sales, consumer confidence and industrial production.

Deflation may yet get the upper hand.

The Economist article does acknowledge global economic "fragilities" and warns that advanced economies may not be prepared for the next inevitable recession. Here's another excerpt:

The global economy still faces all manner of hazards, from the Greek debt saga to China's shaky markets. Few economies have ever gone as long as a decade without tipping into recession--America's started growing in 2009. Sod's law decrees that, sooner or later, policymakers will face another downturn. The danger is that, having used up their arsenal, governments and central banks will not have the ammunition to fight the next recession. ...

Europe is deep in debt and dependent on exports. Japan cannot get inflation to take hold. Wage growth could quickly dent corporate earnings and valuations in America. Emerging economies, which accounted for the bulk of growth in the post-crisis years, have seen better days. The economies of both Brazil and Russia are expected to shrink this year. Poor trade data suggest that Chinese growth may be slowing faster than the government wishes.

If any of these worries causes a downturn the world will be in a rotten position to do much about it. Rarely have so many large economies been so ill-equipped to manage a recession ... .

You can read the entire article by following the link below:
http://www.economist.com/news/leaders/21654053-it-only-matter-time-next-recession-strikes-rich-world-not-ready-watch

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