When an earnest Glenn Stevens spoke to investors in New York this week, shares on Wall Street were nearing record highs, commodity prices rebounding and signs emerging that China’s shaky economy was stabilizing.
Yet investors cheering the market bounce may have been jolted from any complacency on hearing the Reserve Bank of Australia governor’s sobering assessment of the world economy and financial markets, Yahoo reported.
“The relative ‘calm’ seems a little eerie–perhaps fragile,” said Stevens, who had discussed the situation with finance ministers and central bank governors from leading economies in Washington in earlier days.
While the immediate fear of a China meltdown has passed–as Beijing unleashes new stimulus and the US Federal Reserve has soothed markets by winding back the pace of expected interest rate increases–the world economy remains anemic.
Global economic growth has averaged about 2.5% over the past five years, compared to about 4% in the five years before the 2008 global financial crisis.
Stephen Roach, a former chairman of Morgan Stanley Asia, says the world economy is “dangerously close to stall speed” and lacks resilience. “We’re a shock away from the next global recession,” he says.
Of course, there is deep divergence across the globe.
The economies of Australia, the US and Britain are expanding at sub-standard, but not terrible, annualized rates of 2 to 3%. Unemployment is below 6%, though income growth is weak.
Developing commodity export markets like Brazil and Russia are mired in deep recession, while Japan, South Africa and Argentina are on the verge of going backwards.
The recovery in Europe has been sluggish and the outlook has worsened, leaving Europe vulnerable to a possible “Brexit” and Greece’s ongoing budget problems.
