Desperately saving the global economy

IT is beginning to be conventional wisdom that the global economy is moving into a period of low growth. Apparently, it comes as a surprise. Sadly enough, the signals have been all too visible over the preceding decade without policymakers noticing. The culprit is a toxic cocktail of debt and demographics.

Rich countries and emerging markets and developing economies (EMDE) squandered money in the good years prior to the global financial crisis. When the crisis struck, policymakers faced the choice between first addressing the financial crisis with a global meltdown looming and then turn to keep demand (consumption and investment) up to avoid a depression or doing it the other way round. Saving the financial system first was chosen - there are arguments for and against this prioritisation, but policymakers deserve credit for eschewing a meltdown. The recovery, however, was long in coming and the room to manoeuvre, to kickstart domestic economies through borrowing proved to be limited. The already high debt (public and private) ruled such policies out - what in Keynesian terminology would have been called priming the pump.

Since 2008, the large economic powers - the US, the eurozone, China, Japan, and Britain - have been unable to hammer out a common approach. Not surprisingly, the global economy has flattered like a scared bird. Almost every year, the international organisations predicted higher growth and ended by announcing disappointing figures. Financial experts are busy writing about the "next" financial crisis with corporate debt among EMDEs and local communities' debt in China as the main candidates without anyone knowing the real figures.