The International Monetary Fund has declared that the global economy is starting to gather momentum. While this sounds undeniably encouraging and even correct, there is that ominous discovered between the possible economic expansion and the euphemistically known as political uncertainty or the stresses brought about by surging anti-migrant, anti-market and anti-trade populism.
Such an uncertainty may actually be the prelude to some really bad policies, sufficient enough to derail one or several leading economies and halt global expansion. However, there is another imminent danger. This one is less obvious yet is equally important. It is the possibility of chronic underperformance. Although new politics will not bring down the ceiling, it is still a threat in blocking longer-term policies which are supposed to boost growth.
There is a steady yet unspectacular current expansion. The new forecast of IMF states that global output is going to increase to around 3 to 4% from this year to the next, a bit better compared to 2016. The investors are by far not taken fright over the anti-market rhetoric of US President Donald Trump or even Brexit’s implications for the European Union and the United Kingdom or any of the new global instability sources. Of course, this could change in a snap of a finger.
However, even when everything goes well, there is still an issue. Emerging and advanced economies are now set to a growth pattern which is a disappointment by historical standards. The shortfall implies diminished opportunities, stagnant incomes and persistent poverty for hundreds of millions of individuals. This helps explain the existing state of politics.
The longer-term slowdown starts to become permanent. Productivity growth had weakened in most advanced economies which are under pressure from fewer breakthrough innovations, demographic trends, and other forces. It is when the crash finally came. Roughly ten years later, economies still failed to shake it off. Investors and lenders became more cautious, governments are in deep debts and central banks are struggling with an unconventional monetary policy.
A smart economic policy will be able to help boost long-term growth yet it needs deliberate, intelligent action of the kind made far more difficult by new politics.
No quick fixes are applicable here. Innovation must be promoted. Human capital can be improved through a wider access to higher education and better schools. Programs can be developed to help workers relocate across industries and regions. Competition must be encouraged. Carefully chosen infrastructures must be established. All of these things will take years before they can finally yield benefits. Patience is always the watchword here even when the populism is rather impatient.
In the near future, the central banks will either need to resort to more unconventional measures or fiscal policy will need to carry the burden of aggregate demand management. Whatever the case is, economies still require more competent policymakers who are kept safe from the turbulence of everyday policies and trusted by the voters.
While it is good that the global economy has now started to gather momentum, with broken politics, miracles will never happen.
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