And for millions of Americans, even ostensibly good news is providing little to cheer about. The timing was ironic.
In Japan, so-called Abenomics is running out of steam, with the economy slowing since mid and edging close to recession. In the UK, uncertainty surrounding the June referendum on continued EU membership is leading firms to keep hiring and capital spending on hold.
And other advanced economies — such as Canada, Australia and Norway — face headwinds from low commodity prices. Things are not much better in most emerging economies. Among the five Brics countries, two Brazil and Russia are in recession, one South Africa is barely growing, another China is experiencing a sharp structural slowdown, and India is doing well only because — in the words of its central bank governor, Raghuram Rajan — in the kingdom of the blind, the one-eyed man is king.
Many other emerging markets have slowed since as well, owing to weak external conditions, economic fragility stemming from loose monetary, fiscal, and credit policies in the good yearsand, often, a move away from market-oriented reforms and toward variants of state capitalism.
Could Italy be the unlikely saviour of Project Europe? Read more Worse, potential growth has also fallen in advanced and emerging economies. For starters, high levels of private and public debt are constraining spending — especially growth-enhancing capital spending, which fell as a share of GDP after the global financial crisis and has not recovered to pre-crisis levels.
That decline in investment implies slower productivity growth, while ageing populations in developed countries — and in an increasing number of emerging markets for example, China, Russia, and South Korea — reduce the labour input in production.
The rise in income and wealth inequality exacerbates the global saving glut, which is the counterpart of the global investment slump. As income is redistributed from labour to capital, it flows from those who have a higher marginal propensity to spend low- and middle-income households to those who have a higher marginal propensity to save high-income households and corporations.
Moreover, a protracted cyclical slump can lead to lower-trend growth. Finally, with so many factors dragging down potential growth, structural changes are needed to boost potential growth.
But such an overhaul is occurring at a suboptimal rate in advanced and emerging economies, because all of the costs and dislocations are front loaded, while the benefits occur over the medium and long term.
This gives opponents of reform a political advantage. Meanwhile, growth remains below the diminished potential. A painful de-leveraging process implies that private and public spending need to fall, and that savings must rise, to reduce high deficits and debts.
This process started in the US after the housing bust, then spread to Europe, and is ongoing in emerging markets that spent the past decade on a borrowing binge. At the same time, the policy mix has not been ideal.
With most advanced economies pivoting too quickly to fiscal retrenchment, the burden of reviving growth was placed almost entirely on unconventional monetary policieswhich have diminishing returns if not counterproductive effects. Asymmetric adjustment between debtor and creditor economies has also undermined growth.
The former, having overspent and under-saved, had to spend less and save more when markets forced them to do so, whereas the latter were not forced to spend more and save less.
This exacerbated the global savings glut and investment slump. Finally, hysteresis further weakened actual growth. A cyclical slump reduced potential growth, and the reduction in potential growth prospects led to further cyclical weakness, as spending declines when expectations are revised downward.
There are no easy political solutions to the quandary. Unsustainably high debt should be reduced in a rapid and orderly fashion to avoid a long and protracted often a decade or longer de-leveraging process.
But orderly debt-reduction mechanisms are not available for sovereign countries and are difficult to implement within countries for households, firms, and financial institutions.
Likewise, structural and market-oriented reforms are necessary to bolster potential growth. But, given the timing of costs and benefits, such measures are especially unpopular if an economy is in a slump. It will be no less difficult to leave behind unconventional monetary policies, as the US Federal Reserve recently suggested by signaling that it will normalise policy interest rates more slowly than expected.
Meanwhile, fiscal policy — especially productive public investment that boosts both the demand and supply sides — remains hostage to high debts and misguided austerity, even in countries with the financial capacity to undertake a slower consolidation.Jul 31, · Like your local educational TV or radio station, our Forum relies on help from visitors like you.
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By J. Bonsa (PhD), Special to Addis Standard. Addis Abeba, October 20/ – At the opening of Ethiopia’s parliament o n 9 th October , Ethiopia’s President, Dr. Mulatu Teshome, stated that earning foreign exchange was has become a matter of life and death for Ethiopia.
Apparently he was hinting that devaluation of the birr was about to take place. Lingering economic malaise New Normal for 55 Missouri counties A statewide survey was recently conducted by Missouri Rural Development Partners with the hope it would offer information about key issues, such as the economy and workforce, infrastructure and leadership, housing and health.
Aug 22, · The whole idea of milestones, of course, is something of an anachronism; it implies a lockstep march toward adulthood that is rare these days. Download our New Special Report: Alkaline Balance.
Learn why knowing about it and doing something about it, are vital to your health! Click here. ACID IONIZED WATER. Young people, it turns out, are overly optimistic, expecting significant increases in life satisfaction, rather than anticipating the slide down the U-curve.