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“It’s not as bad as we feared, but it’s worse than we anticipated a year ago and worse than we need,” International Monetary Fund Chief Economist Pierre-Olivier Gourinchas told reporters last week.
The IMF raised its forecast for world growth this year to 3.2 per cent, up a touch from the 3 per cent predicted in July. It will ease in 2026 to 3.1 per cent, hardly the stuff of disaster.
The harm from trade dislocations may have been offset by a frontloading of exports before some of the levies kick in, and frenzied investment in artificial intelligence. The latter offers plenty else to worry about. Gourinchas even made a comparison with the dot-com experience in the 1990s, which, when the bubble eventually burst, contributed to a recession in 2001.
But we shouldn’t be so harsh about the ’90s. It’s remembered as a time of great prosperity in the West and, along with some froth, real economic gains.
Alan Greenspan, then chairman of the Federal Reserve and well on his way to guru status, described the era as belonging to a “new economy,” a paradigm shift where massive investments in technology allowed growth to accelerate without generating much inflation. That was possible, he argued at the time, because of the productivity enhancements gained in the process. He wasn’t wrong.
If you were looking for a few pithy words to characterise the four-year-old global expansion, the ‘yes, but’ economy might work.
So what might today’s solid top-line numbers be missing?
For one thing, neither superpower looks so great in isolation. The outlook for both the US and China was marked lower by the IMF. US gross domestic product will increase 2 per cent this year, down by a decent margin from the prior 12 months, and hover around that level. China will go backward to 4.2 per cent in 2026 from 4.8 per cent, according to the estimates. (In recent years, the government has targeted growth of around 5 per cent.)
The factors that have weighed on China — the real-estate crash, an over-reliance on exports, sub-par domestic demand, and deflation — aren’t abating. The latest figures showed the longest price declines since the 1970s.
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The American economy has its own issues. While the government shutdown has delayed the release of key data on employment and other metrics, any resolution will unleash a flood of information on the state of the economy.
Some investors expect the deluge will provide more evidence of weakness to support more monetary easing. Traders are piling into bets on at least one outsize interest-rate reduction by the Fed.
But for all these flaws, and several more, the key economies keep muddling through. Rarely has a glass half-full looked quite so alluring.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously, he was executive editor for economics at Bloomberg News.
