Whether a glass is half full or half empty depends on who is looking at it and from which...
Each week, the Economic Research Department of BNP Paribas reports on economic news.
World trade and GDP growth are running out of steam
The IMF and OECD are calling for a joint effort
This week the IMF has joined the OECD in calling for a joint effort to boost growth,as the temperature of the world economy feels chillier. Developing economies and commodity exporters are facing increasing challenges; world trade is contracting, implying that the developed economies also feel some pressure: the US manufacturing sector suffers from an expensive dollar; the Eurozone has seen some weaker data as of late. Financial market turmoil has been interpreted as signalling economic weakness. However, real time estimates of Q1 growth in the US question that assumption. In the Eurozone, domestic demand continues to be well supported by a competitive euro, cheap oil, low interest rates and a pick-up in credit growth to households and corporates.
The call for a joined policy initiative reflects a concern that if headwinds were to gather strength, action would be necessary but that in key countries policy leeway has become very limited. Monetary policy in particular is becoming less powerful and with bond yields going deeper in negative territory in Europe and Japan, the debate about possible unintended consequences is becoming more intense. Under these circumstances, a joint effort makes sense. It would also have the merit of sending a strong signal of decisiveness and alignment of objectives, thereby reducing uncertainty of households, financial market investors and companies. Let’s not get carried away though: the historical record sadly shows that concerted action is the exception rather than the rule.
William De Vijlder
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