Call it the drift economy. The world somehow manages to stay afloat yet doesn’t go much of anywhere very fast.
Supported by a surfeit of central bank liquidity, the world has skirted numerous hazards and grown at a steady, albeit unspectacular, pace since 2010. And it looks set to do it again in the coming year, slowed, though not swamped, by the U.K. vote to leave the European Union.
“We might end up losing perhaps a quarter percentage point off” world growth as a result of Brexit, said David Hensley, director of global economics for JPMorgan Chase & Co. in New York. “That’s not enough to knock us out of the 2 to 3 percent channel we’ve been operating in recent years.”
Coming after the deepest recession since the Great Depression, the slow-motion expansion has failed to extinguish the lingering anxiety of consumers and companies scarred by the crisis. That’s led both groups to hold back on their spending, in turn retarding the strength of the upswing.
Trade ministers from the Group of 20 nations, meeting in Shanghai on Sunday, saw little reason for optimism. Global cross-border investment may decline by as much as 15 percent this year as trade remains sluggish, China’s commerce minister said. The G-20 representatives pledged to step up their efforts.
“It’s been a disappointing expansion, just drifting along,” said Peter Hooper, chief economist for Deutsche Bank Securities Inc. in New York and a former Federal Reserve official. It has, though, been sufficient to reduce joblessness, especially in the U.S., he noted.
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The question is how long the lackluster status quo can last. Central banks have already pushed monetary policy to its limits, cutting interest rates below zero in some countries and buying up bucket-loads of government bonds.
Populist pressures fed by stagnating living standards are mounting, leading to the June 23 British vote to leave the EU and the rise of the unlikely duo of Donald Trump and Bernie Sanders as candidates for president in the U.S.