The lack of growth in the global economy has reached an alarming low-point as financial policy-makers convene in Lima, Peru for their yearly talks.
The concern stems from secular stagnation, particularly in larger countries; China being one of the most problematic nations for economic stagnation and slowed growth. A slowing of economic growth in industrialized countries like China creates a world-wide cycle of slowing the emerging markets who are trying to export capital, which slows global growth even further.
This global economic standstill would create another Western recession. Individuals, small businesses, and large-scale corporations didn’t come back from the last recession, while others are still struggling to recover, years later. Another recession would cripple Western nations.
With interest rates projected to remain low in industrialized nations in Europe and Japan, while interest rates barely rise in the U.S. It’s hoped that the annual meeting will yield policies to improve global growth as their first and foremost priority of macroeconomic policies.
It’s expected that gross domestic product yields will continue to rapidly decline, so economists hope that the world’s economic policy-makers will abandon trying to rebuild from the last recession, and work to prevent a new one from devastating the global market. With deflation is now a more likely threat than that of inflation, the world’s policies will have to change to reflect the new impending risks at hand.
If another recession does occur, it would grind global production to a halt, and further exacerbate the problem of economic stagnation. It would take longer than ever to recover, and so closely on the heels of the last recession, it would damage economies past the point of no return or repair.
The world market can’t naturally bounce back from the tipping point; so it’s time for the world’s economies to embrace fiscal stimulus, and work to improve the situation and bring the Western countries back from the brink of a second recession. In the financial crisis of 2008, policy-makers could have taken preemptive action… but failed to.
The U.S. housing market had been looking grim far in advance of its crash. There were blatant pricing signals from mortgage signals and bank stock prices, but they chose to hope the market would reverse its course and swing back into balance. It did not.
The recent Greek debt crisis was another preventable financial horror. Policy-makers ignored the many market signals that indicated that the national debt wouldn’t be paid in full, nor nowhere near the allotted deadline. They had time to make a case for adjustment once the situation was fully understood, but instead they did nothing.
With monetary policy incredibly loose and interest rates lower than ever. If the world wants to avoid a global economic situation, it will need to be artificially adjusted for the health of the economy.
Emerging markets have been given a substantial amount of capital from the markets of more developed countries. These developed markets saw that the investments wouldn’t be productive in their own markets, and that it would be wiser to invest in outside, emerging markets.
But it caused a chain of export growth that happened too quickly, and as a result, for the first time in 30 years, developing country net capital dropped severely and abruptly. This is one of the many factors that has led the global market to take such an alarming turn that will necessitate the world embracing fiscal stimulus.
They’ll have to at least take it into consideration at these talks in Peru if they want to avoid a full-on global economic halt.