TOKYO
– The global economy is like a jetliner that needs all of its engines
operational to take off and steer clear of clouds and storms.
Unfortunately, only one of its four engines is functioning properly: the
Anglosphere (the United States and its close cousin, the United
Kingdom).
The
second engine – the eurozone – has now stalled after an anemic post-2008
restart. Indeed, Europe is one shock away from outright deflation and
another bout of recession. Likewise, the third engine, Japan, is running
out of fuel after a year of fiscal and monetary stimulus. And emerging
markets (the fourth engine) are slowing sharply as decade-long global
tailwinds – rapid Chinese growth, zero policy rates and quantitative
easing by the US Federal Reserve, and a commodity super-cycle – become
headwinds.
So the
question is whether and for how long the global economy can remain aloft
on a single engine. Weakness in the rest of the world implies a
stronger dollar, which will invariably weaken US growth. The deeper the
slowdown in other countries and the higher the dollar rises, the less
the US will be able to decouple from the funk everywhere else, even if
domestic demand seems robust.
Falling
oil prices may provide cheaper energy for manufacturers and households,
but they hurt energy exporters and their spending. And, while increased
supply – particularly from North American shale resources – has put
downward pressure on prices, so has weaker demand in the eurozone,
Japan, China, and many emerging markets. Moreover, persistently low oil
prices induce a fall in investment in new capacity, further undermining
global demand.
Meanwhile,
market volatility has grown, and a correction is still underway. Bad
macro news can be good for markets, because a prompt policy response
alone can boost asset prices. But recent bad macro news has been bad for
markets, owing to the perception of policy inertia. Indeed, the
European Central Bank is dithering about how much to expand its balance
sheet with purchases of sovereign bonds, while the Bank of Japan only
now decided to increase its rate of quantitative easing, given evidence
that this year’s consumption-tax increase is impeding growth and that
next year’s planned tax increase will weaken it further.
Read more at http://www.project-syndicate.org/commentary/us-growth-and-weakening-global-economy-by-nouriel-roubini-2014-10#fsMsu48FYKRt5dyp.99
Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of RGE Roubini Global Economics
