The Global Economy in Turbulent Times

CHAPTER 19 2013: Breadth of Global Slowdown Disconcerting¹

It’s disconcerting. We now have a Goldilocks situation—not too hot, not too cold. The speed limit on global growth has slackened, with no further boost from the emerging markets to offset the continuing slack in advanced economies. The world economy is just moving along with nothing much to shout about.

The year started badly, with fiscal cliffs lurking in the United States and a toxic situation in Europe. But the worst didn’t happen. Yes, US politicians bungled about, but disaster was avoided. The Cyprus bailout turned into a bail-in; nevertheless, government bond yields surprisingly fell across the troubled eurozone periphery as recession persisted. Yet, it could not prevent a slowdown worldwide. Global growth sank below 2.5 percent in the first half of 2012. Any expected rebound has since faded.

First quarter of 2013 gross domestic product (GDP) growth in the United States and China turned disappointing. However, Japan’s economy is rebounding, reflecting fiscal and monetary stimuli with the yen tumbling against US$ and euro. Unemployment in Europe remained unrelentlessly brutal, reflecting the deepening recession. In April, an important index of global economic activity fell to its lowest level since October 2012, suggesting that the world economy is barely managing to accelerate.

Europe remains in bad shape. The European Central Bank (ECB) is reported to continue to see downside risks surrounding the economic outlook, ...