By Pierre Briançon
A slowdown of the global economy this year has long been predicted by analysts and all international organisations, from the IMF to the OECD and from the World Bank to the EU.
But a sign of the times is that even though the economy will keep growing this year and next, albeit at a more moderate pace than in the previous years, most minds are rather focusing on what could make matters worse, and turn the slowdown into a downturn.
Participants to the Davos meetings this week confirmed that the grounds for pessimism are multiplying.
The IMF, the latest of the big multinational organisations to revise its forecast down, this week listed a slowdown in China and the possibility of a no-deal Brexit as the two major events that could have a big negative impact on world growth.
The IMF, as others, had already revised its forecast down last autumn when the slowdown clearly appeared on analysts’ radars.
But China and Brexit are not, by far, the only reasons to worry. There is of course the possibility that the risk of a trade war might be upgraded from a mere threat, which it remains for now, to a real, full-blown conflict.
Germany’s economy will grow at a slower rate this year than France’s or the UK’s, partly because the mere fear of a trade war has hurt global trade, which is bound to hurt an export-driven economy.
Global gross domestic product is seen growing 3.5% this year by the IMF, against 3.7% last year. US growth will decrease from 2.3% to 2%, the eurozone’s from 1.8% to 1.6%. Emerging markets (4.5% this year vs 4.6% in 2018) will hardly slow down at all.
By all conventional measures, that would qualify as soft landing at worst. But what seems to matter most at this juncture is that one crucial dimension of growth — confidence — is fast disappearing.
Raw numbers and statistics matter less here than sentiment. China this week announced that its GDP had grown 6.6% last year, and this was soon taken by some analysts as a sign that risks were accumulating there.
The IMF seemed to concur, noting that it wouldn’t take much for markets to become jittery if the trade US-China trade war escalates. “As seen in 2015–16, concerns about the health of China’s economy can trigger abrupt, wide-reaching sell-offs in financial and commodity markets,” the organisation noted.
And even though, as Fang Xinghai, the vice-chairman of the China Securities Regulatory Commission, noted this week in Davos, “slowing down in China is not a collapse,” many might prefer not to wait around to take the chance.
As Harvard professor Ken Rogoff has written, a Chinese slowdown is likely to have an impact that proves much worse than current analysts reckon.
The general anxiety also stems from the fear that governments in the US and Europe will prove unable to face a future serious crisis if and when it happens.
The eurozone has failed to shore up its defenses adequately, even as Italy is showing how the policies of a eurosceptic government can affect all its neighbours, and tip one country into a recession that may test yet again the monetary union.
In France, Emmanuel Macron is proving every day that reforming is less easy than getting elected. And the repeated attacks of the US administration against multilateral organisations leaves little hope for governments to quickly find a way out of a possible slump when they need to cooperate next time around.
Meanwhile, debt, both public and private, has accumulated in the last ten years, leaving economies vulnerable to the next interest rate hikes, and more dependent than ever on the goodwill and wisdom of the world’s central bankers.
This week it took Axel Weber, the chairman of UBS, and once one of the toughest hawks of eurozone central bankers, to celebrate in Davos the wisdom of his dovish colleagues. Monetary tightening, he argued or maybe hoped, is not on the cards for the current economic cycle.
This article also appeared on MarketWatch sister publication Financial News