Macroscope | Policymakers flounder as global recovery starts to stall
After years of low interest rates, huge monetary injections and fiscal stimulus, policymakers are running out of ready solutions to stop the rot
A much cooler mood is descending over global markets and investors could be feeling more than a cold snap if economic growth prospects start to freeze over in the coming months.
Just at the point when the global economy should be primed full of monetary stimulus ready to extend on the next leg of recovery, there are disturbing signs of economic sentiment starting to stall. What's worrying is there is not a lot that world policymakers can do to prevent it.
After years of rock bottom rates, massive monetary injections and a huge flood of fiscal stimulus, global policymakers are running out of bright ideas and ready remedies to stop the rot. The magic box of policy tricks that central banks and governments generally turn to in times of need is looking alarmingly bare.
The deep crisis in Greece, stock market mayhem in China and worries about a return to tougher monetary policy in the US are just the top of a long list of worries niggling global investors and now starting to make a deeper dent in global economic confidence.
OECD leading cyclical indicators have been hinting at slower recovery momentum for months. The latest round of purchasing managers' surveys are also pointing to weaker growth ahead. China's July PMI reading sank to 48.2, suggesting the nation's vast factory sector is contracting at its fastest pace in 15 months. It casts doubts about the government hitting its 7 per cent growth target this year. This is a troubling trend that is being experienced across the globe and challenging official complacency about upbeat hopes for continued recovery extending uninterrupted for much longer.
The dilemma is whether hints of slower recovery are a natural business cycle slowdown or something much more sinister in terms of the global financial crash moving into a more damaging phase.
The global financial crash was the product of excessive credit expansion, over-leverage and rash financial practices. The worry now is that the global economy could be entering a new phase of uncertainty and greater market dangers.