Growth in the world economy subsided in 2012. The expansion since 2009 has been a bitter disappointment because much of the slack created by the recession remains. With so much idle capacity, a chance exists for robust growth next year, but only if governments raise their game.
This recovery was always going to be slow and troubled. A crash brought on by public and private overborrowing pushes prices down and deters business investment as distressed debtors, struggling to repair their balance sheets, quit spending. Yet wherever you look, political failure is holding economies back. Things don't have to be this bad.
When the figures are in, global growth will probably be less than 3.5 per cent in 2012 - down from 3.8 per cent in 2011, itself a disappointing year. The advanced economies will probably raise their output by less than 1.5 per cent. Europe is back in recession. With unemployment still high in every major economy and extraordinarily high in some, the sluggishness is unacceptable.
Every economy has its unique problems, but political failure is a recurring theme. In some of the biggest economies, this takes a similar form: governments have failed to get fiscal policy working as it should, meaning adequate short-term stimulus combined with credible medium-term control.
Premature fiscal contraction (or inadequate fiscal support in the first place) is plainly holding back growth in the US, the European Union and Japan. Governments are trapped in undue austerity because they can't or won't commit to tighten later, when their economies could better stand it. To maintain financial-market confidence, governments have gone overboard with fiscal tightening.
Hamstrung by lack of credibility, governments have also delegated stimulus to central banks. The US Federal Reserve has responded with remarkable innovations, including quantitative easing (QE) on a huge scale.
The European Central Bank has less political room to manoeuvre. Still, it has promised to do "whatever it takes" to preserve the euro system and has begun a QE programme of its own. The more rigidly conservative Bank of Japan has so far dragged its feet - and Japan's prolonged stagnation is the result. To force the Bank of Japan's hand, the newly elected prime minister, Shinzo Abe, has issued barely veiled threats to its independence.
Trouble is, monetary stimulus isn't the first-choice policy under present conditions. Nominal interest rates can't be cut to less than zero - hence the resort to QE. But unorthodox stimulus only works if it raises expectations of higher inflation, which central banks are loath to admit, much less advertise. This reluctance makes the policy partly self-cancelling.
With fiscal policy broken, we don't doubt that aggressive central-bank easing is the right course. Still, it would be much better to mend fiscal policy, the tool of first resort, once nominal rates have been cut to nothing.
Japan, with public debt that is more than double the size of the economy, has little if any remaining fiscal capacity. The US and Europe, however, have room to maintain or increase short-term fiscal support, so long as clear, binding plans for longer-term restraint are in place. Instead, on both sides of the Atlantic, there is disarray over budgetary policy.
In the US, breaking the impasse over the "fiscal cliff" is only a first step. All parties must also agree to a binding plan to bring the ratio of public debt to GDP back below half.
There is no excuse for Washington's perpetual fiscal paralysis. Getting policy right in Europe, in contrast, is genuinely difficult. There, fiscal reform involves constitutional reform. Lifting the threat of insolvency from Spain and Italy - it's too late for Greece - requires further pooling of sovereignty, to allay the fears of Germany and other countries that they will be on the hook permanently for southern profligacy.
Lai See is on holiday