Yes, but without force. Advanced economies have returned to growth, but even where the recovery appears more straightforward (in the United States and the United Kingdom rather than euro zone), investment has not truly started to rise and inflation is still well below the central bank target.
Emerging countries are fairly resilient to the crisis although some have suffered the blow against extraordinarily accommodative monetary policies on both sides of the Atlantic, in particular seeing to appreciate their currencies. But one thing is certain in the ocean of uncertainty surrounding the global economy today, emerging economies will receive more than the ripple effect that China provided them. This reflects the focus of the latter and slowing growth. China has shifted its growth model towards domestic demand and is increasingly able to produce yesterday what it needed to import. China will participate tomorrow at least in the dynamics of trade and, given the weight it now has in the global economy, this will weigh on trade and growth worldwide.
The return to growth in advanced economies does mean that the crisis is now behind us
Doubt remains, this is probably the key word of this year 2016. It is difficult to imagine the famous “return to normalcy” that fed the reflections editorialists until last year. No less than eight years have passed since the engagement of the subprime crisis in the US in summer 2007. It took several trillion to restore the functioning of the banking and financial sector. It installed the feeling that something has changed and that the usual frames will not be much use. What remains surprising in the current configuration of the advanced economies is that there is certainly less brakes, but still little spring.
It is clear that it is not enough that the market rates are on the floor for investment by companies to start again. It lacks a key ingredient: confidence! It remains too weak, especially in Europe. In this regard, the management of the Greek crisis could have further degraded the confidence of Europeans and especially fed their concerns about the economic and political future of the area. Another concern: Japan is still in deflation and economic policy still deadlocked despite a strong monetary stimulus. In the UK, the risk of deflation is still there and fears of a housing bubble present, even though monetary policy has hardly any leeway to combat them.
Should we fear the phenomenon of secular stagnation?
The idea resurfaced with Larry Summers. It is the US that the most of the secular stagnation we debate, but Europe is probably the most vulnerable region. Which is symptomatic, it is the failure of investment that characterizes this recovery. The general weakness of the activity is a significant cause of the fall in investment, but the long-term effects of monetary and financial conditions prevailing since the 80’s they show that investment cannot start with a sustainable policy which merely lower the monetary rate without managing to raise the natural rate of interest, that is to say, the profit rate of new investment. They stress the need to take into account the financial cycle. The financial cycle embeds the real economy in three phases: Phase momentum artificially inflated by the bubble, a burst phase, a phase reversal. Interactions games lead the secular stagnation.
Monetary policy does inefficiency, central banks have they committed mismanagement during the crisis? Central banks have done a lot. They brought a strong response to the crisis, deploying an arsenal of unconventional measures, which have proven they believe effective. Nevertheless it remains to be seen how to get out without causing an abrupt adjustment. Nevertheless, monetary policy has suffered much criticism, especially in the euro area until the ECB announcement in January 2015 to expand its asset purchase program. the monetary policy of the ECB suffers from the absence of sufficiently developed capital markets, as banks are the only transmission channel. When these go wrong, liquidity granted them fail to ease credit conditions. This insufficiency of capital markets also hampers the effectiveness of quantitative easing because it translates for many, through purchases of sovereign securities for which the rates are already historically low. The macroeconomic effects of these purchases are then likely to be weak. No possibility to buy more private securities, the ECB can support growth directly.
Moreover, differences in results of non-standard measures taken by the Fed and the ECB may well reflect differences in the economies of financing structures. The recovery was faster and more intense where companies use easier financing by market debt, as in the United States when the credit runs out, they then have access to an alternative financing. This is not the case when companies are highly dependent on bank credit, as in Europe. Hence the need, according to them, to encourage diversification of funding by expanding the debt markets. It is expected to produce what the Union of desired capital markets by the European Commission. Paid for public authorities to put in place effective regulation to ensure stability of the future European financial system.
Nevertheless, monetary policy can not do everything. It can lower the cost of capital, but to raise the natural rate, industrial and fiscal policies are essential. At the same time, we must support the monetary policy of a macro-prudential policy to avoid the financial boom that lower the cost of capital can result. And we must also correct the excessively marked preference for debt by fiscal policy. Only this unique combination of economic policies will boost productive investment without promoting a new phase of the financial cycle of growth.
Inequalities have increased at the same time that financial instability, should see two evils connected? Inequality has actually increased and now challenge the international institutions that have devoted the last years several reports to highlight especially their impact on growth. Exploring the links between development finance and inequality is less common. The period of expansion in the world economy before the crisis has not benefited all the same way. Also the less affluent households have resorted to debt to maintain their level of consumption. Thus, inequality could well be the cause of the surge in credit observed before the crisis.
That’s what show different works carried out on the United States but also on a broader sample of developed countries. The changes that have occurred in finance including soaring salaries compared to other sectors in Europe, but especially in the United States also explain the growth in inequality over the recent period, driven by the highest income . It will take more work to establish the validity of these initial results, but there are already strong indications that this is actually two related ailments.
Emerging marking time, China is refocusing and world trade slows. What future in these conditions for globalization? Perhaps we at the dawn of a new era of globalization. The meteoric rise of China as the accelerated development of global value chains, which until the crisis were the vectors of the strong growth of world trade, were perhaps as Transitional phases are called to temper. This is probably what is happening: there is very little to gain by continuing the decomposition of value chains and China refocuses. These changes in the Chinese economy also mean that their savings are no longer runs as much as before the crisis to the rest of the world. The current account, which reached 10% of GDP in 2007 is not more than 2% in 2014. Chinese savings now finance more Chinese investment.
Among emerging, one country stands out. This is India. The country mobilizes the attention. For the first time, India in 2015 growth could exceed that of China. India does become the new champion of the Asian economy? This is not to exclude, but to achieve this, he will have to face many challenges to advance education, improve infrastructure and reduce inequality, while providing a financial system is to measure investment growth-it must achieve.