Think back. In the pre-2007 era of the Great Moderation, GDP grew steadily in developing and developed countries alike. Most experts could see no end to the good times. But a financial crisis undermined the U.S. economy and a related financial crisis then embarrassed those who expected stability in the euro zone.
| President Obama |
Supposedly, much has been learned from the many mistakes made. The leaders of the G20 nations meeting in St Petersburg might think they deserve a pat on the back. But look back, just a few months, to April 2013. Then the International Monetary Fund was with the consensus opinion that growth in emerging markets would continue for years. Thanks largely to a financial dislocation, in this case precipitated by an anticipated shift in U.S. monetary policy, many developing economies are now stuttering or stumbling. Exchange rates are swinging. Investment markets are volatile. Interest rates are moving.
Experts clearly still have trouble identifying where economies are vulnerable to financial disruption. The importance of financial factors is sometimes overestimated and sometimes underestimated. For instance, policymakers were wrong to fear that big government deficits would cripple GDP growth. That error made the IMF too cautious in April about prospects in both the euro zone and the United States. The relationship between central banks, financial markets and the real economy is still poorly understood.
Economic momentum is now picking up in developed economies and the IMF is revising its forecasts upward. But bond yields are also increasing as the U.S. Federal Reserve prepares for a change in monetary direction. If the troubles spread, financial dislocations could catch out policymakers yet again. They could undermine the nascent recovery in rich countries.
0 comments:
Post a Comment