The Global Economy in Turbulent Times

CHAPTER 32 The World Economy: Growing Pains and Bubbly Worries¹

Two recent reports offered somber, certainly sober reading: World Bank’s June 2014 update—“Global Economic Prospects: Shifting Priorities, Building for the Future,” and the Bank for International Settlements’ (BIS) 84th Annual Report, 2013–2014, released at end-June (BIS in Basel acts as the central banks’ banker).² They convey two important messages. First, as the global economy got off to a bumpy start this year, World Bank now has to trim its global growth forecast amid a weaker outlook all round. Second, BIS is concerned that today’s buoyant financial markets are out of sync with the wobbly economic and worsening geopolitical outlook. This disconnect is worrisome. Let me sound a warning and draw some lessons for public policy.

The Worldwide Wobble

After nearly five years into their recovery from a deep recession, advanced nations still look disappointingly feeble, even fragile. The harsh winter in the United States, along with the ever-deteriorating Ukraine conflict, and worsening confrontation in the larger Middle East landscape, has chilled the world economy’s outlook for this year. The World Bank now cuts global gross domestic product (GDP) growth to 2.8 percent in 2014, from 3.2 percent forecasted in January 2014. “We are coming to a period where growth is going to be more difficult to achieve than in the past everywhere, including in emerging markets,” according to its lead author, Andrew Burns, on June ...