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Are advanced economies ready for true revival?
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UNTIL recently, the conventional wisdom was that China’s contribution to global reflation would be increasingly accompanied by those of the US and Europe. Yet, the realities may look grimmer.
Usually, the term “reflation” is used to describe the first phase of economic recovery after a period of contraction. More recently, “global reflation” has been deployed to refer to the post-crisis past decade, which has been characterized by lingering recovery from the global crisis.
During the global crisis, China accounted for much of global growth prospects. Even today, China continues to drive a disproportionately large share of global growth. But no one country can save the world economy single-handedly.
Slower than expected
Not so long ago, there were great hopes about sustained “global reflation.” Last fall, the Trump triumph in the US elections unleashed great expectations about the coming of fiscal expansion, tax reforms, and deregulation. As a result, markets soared, which lifted confidence internationally. Thereafter, European recovery has been faster than in years.
Today, half a year later, it is clear that Trump’s fiscal expansion will move ahead far slower than anticipated.
In Europe, rising confidence ignores the fact that current growth rates remain predicated on ultra-low rates and tens of billions of euros for quantitative easing on a monthly basis. It may under-estimate the adverse impact of the lingering Brexit story, the challenges associated with French President Macron’s proposed labor reforms, as well as the potential implications of the struggling two mid-sized Italian banks. It is a recovery that, at least for now, relies on artificial lungs.
In the past decade, much of global growth prospects and recent global reflation can be attributed to China. In the next few years, China will continue to support global economic integration through the One Road and One Belt program and many other initiatives. But advanced economies should make their fair contribution, too. So the question is, have advanced economies really surpassed secular stagnation and are they today willing, but also able to do their share for global growth prospects?
Dr Dan Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see http://www.differencegroup.net/ Shanghai Daily condensed the article.
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