World faces growth confidence test
Five years after the European sovereign debt crisis investors fear the engines are sputtering as eyes turn to the US
The global economy faces its biggest test of confidence since the European sovereign debt crisis as investors fear it is running out of engines.
Japan and the euro zone are throwing up fresh signs of weakness by the day and emerging markets such as China are dragging instead of driving growth. The sense of tumult is being exacerbated by war in the Middle East, the standoff in Ukraine, street protests in Hong Kong and the spread of ebola to Dallas.
The worry is that five years since the world limped out of recession, central banks have virtually exhausted their stimulus arsenals if inflation and activity keeps fading. That leaves the hopes of financial markets riding on the United States to resume its historical role as a locomotive robust enough to pull up demand elsewhere.
"The global economy and the markets have a history of traumatic economic events," said Paul Mortimer-Lee, chief economist for North America at BNP Paribas in New York. "Psychologically and physically they have not recovered fully and are anxious about a relapse."
A Bank of America survey of fund managers this week showed the lowest optimism in the outlooks for economic growth and inflation in two years, pushing them to increase their cash balances and avoid commodities.
"Investors have huge questions about the world right now," said David Kotok, chairman and chief investment officer at Cumberland Advisors.
The latest catalyst for concern was Wednesday's news that US retail sales dropped 0.3 per cent last month and wholesale prices unexpectedly fell for the first time in a year.