Overheating East to falter before the bankrupt West recovers
From the overheating East to a troubled West, Ambrose Evans-Pritchard offers his predictions on the global economy next year
By Ambrose Evans-Pritchard
This bear is not for turning. It would be joyous indeed if a fresh cycle of global growth were safely underway, but I don’t believe it. Sorry.
Policy levers in the US, Europe, and Japan remain set on uber-stimulus with the fiscal pedal pressed to the floor and rates near zero everywhere, yet OECD industrial output has not regained the peaks of 2007-2008 by a wide margin. Leading indicators are tipping over again. We are one shock away from a liquidity trap.
The East-West trade and capital imbalances that lay behind the Great Recession are as toxic as ever. Surplus states are still exporting excess capacity with rigged currencies — the yuan-dollar peg for China and, more subtly, the D-Mark-Latin peg within EMU for Germany.
Dangerously high budget deficits of 6pc, 8pc, or 10pc of GDP in countries with dangerously high public debts near 100pc may have prevented an acute depression, but they have not prevented the weakest rebound since World War Two, and they cannot continue, whatever the assurances of New Keynesians and pied pipers of debt.