Economic trends

Temperature check: global recovery is anaemic

The global economy is at a crossroads: world leaders can either accept the ‘new mediocre’ or take action

Delegates attending the annual meetings of the International Monetary Fund (IMF) and the World Bank this week in Washington D.C. are receiving free thermometers as a precaution against the deadly Ebola virus.

While delegates are highly unlikely to catch Ebola during the meetings, the thermometers do serve as a fitting metaphor for the poor health of the global economy.

In the words of IMF Managing Director Christine Lagarde, the global economy is at an “inflection point”: world leaders can either muddle along in acceptance of sub-par growth – a “new mediocre” – or implement bold policies to accelerate growth, increase employment and achieve a “new momentum”.

For many delegates, the biggest disappointment this year has been slowing growth in several emerging markets

The IMF has lowered its forecast for global growth to a mediocre 3.3 per cent in 2014 – the same as 2013 – rising to 3.8 per cent in 2015.

For many delegates here in Washington this week, the biggest disappointment this year has been slowing growth in several emerging markets.

Although emerging economies will continue to account for the lion’s share of global growth, countries such as China, India, Brazil are adjusting to a lower growth potential, and the momentum seen over the past decade is clearly missing.

Banks are adjusting to a new normal

Attention this week invariably turned to the financial sector with the key question being whether banks are in a good place to support a global recovery. The evidence is mixed. In both advanced and emerging economies, banks are adjusting to a new normal in terms of the global regulatory landscape.

Federal Reserve Board Governor Dan Tarullo, speaking at an event organised by the Bretton Woods Committee, made it clear that the US would continue to push for higher standards than the internationally agreed thresholds, because of the systemic nature of the country’s financial sector.

This was met by grumbling by emerging-market representatives, who feel it is unfair that that their banks are being required to meet tough US and European standards when they had no hand in the global financial crisis.

Many emerging market banks are better capitalised than their western counterparts but face extra-territorial action from Brussels and Washington D.C. under the ostensible objective of pursuing global standards.

Global economic recovery might be mediocre but this is not detracting policymakers and the private sector from dealing with a humanitarian crisis

Free thermometers notwithstanding, much of the talk at the IMF meeting has been about helping vulnerable West African nations with economic support to tackle the Ebola crisis. The IMF is providing USD130 million in emergency financial assistance to the three countries most affected: Guinea, Liberia, and Sierra Leone.

The World Bank and other donors are also stepping up support in a powerful demonstration of the positive aspects of multilateralism.

The global economic recovery might be mediocre but this is not detracting policymakers and the private sector from throwing their full weight into dealing with a humanitarian crisis.