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Is the global economy suddenly fragile?


How did the narrative shift so quickly?

A year ago every economist on TV was talking about how we were on the precipice of global synchronized growth. Now all everyone wants to talk about is a recession.

Maybe that’s yet-another instance of economists being wrong or maybe it’s something else. Maybe the global economy has gotten more fragile. It may only take a swing in politics or a dip in sentiment to send the world into a recession.

Martin Wolf digs deeper and argues that what’s changed is monetary policy. Economies are more fragile because central banks have less of an opportunity to ease because they’re so close to zero. So when trouble begins to hit, companies’ and consumers’ debt burdens are more at risk. Everyone has to quickly tighten their belts.

Once the trouble begins he also argues that political fragility may exacerbate the problems.

“The worry must rather be over the context in which such a slowdown might occur. It is the political and policy instability, combined with the exhaustion of safe options for credit expansion, that would make handling even a limited and natural short-term slowdown potentially so tricky,” he writes.

It’s a compelling argument.

ForexLive



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