Here’s Why the Global Economic Recovery Could Stall Out
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Here’s Why the Global Economic Recovery Could Stall Out


While the U.S. is enjoying a relatively robust recovery, the global economy is operating in fits and starts amid ominous signs of of a renewed recession.

At the same time the U.S. has benefitted from relatively steady job growth and a drop in its unemployment rate to a pre-recession level of 5.5 percent, parts of Europe and swaths of Asia and other emerging economies are struggling to keep their heads above water.

Related: IMF Says Currency Shifts Support Global Economic Growth

Two new reports – from the International Monetary Fund and the Brookings Institution – describe weak economic growth in most corners of the globe, especially among emerging economies with stagnant low growth rates and risks of deflation.

In its spring economic forecast, the IMF on Tuesday slashed projected growth rates for Brazil, Russia and Mexico for 2015, warning of continued weak growth among emerging economies in the 4.3 percent range next year. And China, once a leading driver of the global economy, is projected to see its growth rate decline from 6.8 percent in 2015 to only 6.3 percent in 2016.

One notable exception is India, whose economy is projected to grow at a 7.5 percent clip this year and next, which would put it ahead of its arch rival China.  Low oil prices have proved to be a boon for India – helping to keep down the import bill, the current account deficit, and the budget deficit. However, it continues to struggle with rising food prices.

“Financial stability risks have risen amid a moderate and uneven global economic recovery – with rates of inflation that are too low in many countries,” stated the IMF’s latest Global Financial Stability Report. “Divergent growth and monetary policies across countries have increased tensions in global financial markets and caused rapid and volatile moves in exchange rates and interest rates over the past six months.”

Related: As Global Economy Sputters, U.S. Growth Is Jeopardized

A different global economic analysis published this week by Brookings paints an even gloomier picture of a “stop and go global recovery” that “seems at risk of stalling again, with only isolated pockets of strength evident in the world economy.”

The latest update of the Brookings-Financial Times Tracking Indexes for the Global Economic Recovery highlighted the widespread problem of stagnant growth levels, risks of deflation and weak consumer and business confidence.

“Barring three economies with sustained growth momentum – the U.S., United Kingdom and India – there are few others where short-term growth prospects look encouraging,” wrote Eswar Prasad, Karim Foda and Arnav Sahu. “Geopolitical uncertainties, ranging from the volatile negotiations between Greece and its euro zone counterparts to the tensions in Ukraine and the Middle East, continue to sap confidence.”

Related: India’s Economy Recovering, Reforms Vital: IMF

Prasad is a professor at the Dyson School at Cornell University and a senior fellow at Brookings. Foda is a research associate at Brookings; Sahu is a student at Cornell. Among other findings in the report:

--A quantitative easing strategy by the European Central Bank has stoked a marked  depreciation of the euro and offset concerns about the fallout from a disorderly resolution of the Greek debt crisis. The combination of a rally in  European equity markets, higher bond yield  and low oil prices have helped to stave off recession .

--Japan’s economy is also experiencing a mild recovery after a brief recession, helped by a falling yen that’s boosted export growth. However, consumer and business confidence remain subdued; retail sales are falling. 

--The common thread among emerging market economies is slower GDP growth, declining consumer and business confidence, and weak export growth as external demand remains subdued and the falling euro and yen have reduced the competitiveness of emerging market exports. The four largest emerging and developing economies are Brazil, Russia, India and China, followed by South Korea, Mexico, Indonesia and Turkey.

--China’s economy is facing a broad slowdown. Growth in industrial activity has slowed significantly, producer prices keep falling, and various other indicators of economic activity indicate a loss of momentum. “Still, the government has enough policy space to maintain growth at around 7 percent for the next couple of years,” the Brookings report said.

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