To understand today’s global economy, look back 80 years.
Just like in the 1930s, growth is being constrained by companies unwilling to spend, falling inflation expectations and governments backing away from fiscal stimulus.
The trigger for the current malaise was the financial crisis that left a hangover of debt and deleveraging amid tighter banking regulations that are exacerbating deflationary pressures. It is similar to the kind of shock that preceded the 1930s slump, according to an analysis by Morgan Stanley economists led by Hong Kong-based Chetan Ahya.
“We think that the current macroeconomic environment has a number of significant similarities with the 1930s, and the experiences then are particularly relevant for today,” they wrote. “The critical similarity between the 1930s and the 2008 cycle is that the financial shock and the relatively high levels of indebtedness changed the risk attitudes of the private sector and triggered them to repair their balance sheets.”
Like then, the end result could be a prolonged weak period and subdued inflation expectations, with a risk that those price expectations are unanchored. The danger is that central banks move too quickly to raise interest rates or governments cut back on spending, triggering an even deeper slowdown.
“In 1936-37, the premature and sharp pace of tightening of policies led to a double-dip in the US economy, resulting in a relapse into recession and deflation in 1938,” the analysts wrote. “Similarly, in the current cycle, as growth recovered, policymakers proceeded to tighten fiscal policy, which has contributed to a slowdown in growth in recent quarters.”
Still, not every country is moving to tighten policy given the pessimism for global growth. The World Bank earlier this month cut its outlook for global growth, as business spending sags in advanced economies, including the US, while commodity exporters in emerging markets struggle to adjust to low prices.
World GDP is expected to grow by 2.4 percent this year, a pace that is unchanged from last year and down from the 2.9 percent estimated in January.
That soggy outlook is fueling a debate about how policy responds. One example is the US, where a move by the Federal Reserve in December last year to lift interest rates for the first time in nine years provoked criticism that the hike came too soon, given the subdued inflation outlook. Former US secretary of the Treasury Lawrence Summers has said that the Fed should not raise rates until it sees the “whites” of the eyes of inflation.
At the same time, finance chiefs from the world’s top economies promised in February this year that their governments would do more to boost demand. Since then, though, it has been central banks who have continued to stoke growth with easing by monetary authorities from Australia to Europe.
To avoid a new downward spiral, governments will need to step up, the Morgan Stanley analysts said.
“Activating fiscal policy, particularly at a time when the monetary policy stance is still accommodative, could lead to a virtuous cycle where the corporate sector takes up private investment, and sustains job creation and income growth,” they wrote.
Intel Corp chief executive officer Lip-Bu Tan (陳立武) is expected to meet with Taiwanese suppliers next month in conjunction with the opening of the Computex Taipei trade show, supply chain sources said on Monday. The visit, the first for Tan to Taiwan since assuming his new post last month, would be aimed at enhancing Intel’s ties with suppliers in Taiwan as he attempts to help turn around the struggling US chipmaker, the sources said. Tan is to hold a banquet to celebrate Intel’s 40-year presence in Taiwan before Computex opens on May 20 and invite dozens of Taiwanese suppliers to exchange views
Application-specific integrated circuit designer Faraday Technology Corp (智原) yesterday said that although revenue this quarter would decline 30 percent from last quarter, it retained its full-year forecast of revenue growth of 100 percent. The company attributed the quarterly drop to a slowdown in customers’ production of chips using Faraday’s advanced packaging technology. The company is still confident about its revenue growth this year, given its strong “design-win” — or the projects it won to help customers design their chips, Faraday president Steve Wang (王國雍) told an online earnings conference. “The design-win this year is better than we expected. We believe we will win
Chizuko Kimura has become the first female sushi chef in the world to win a Michelin star, fulfilling a promise she made to her dying husband to continue his legacy. The 54-year-old Japanese chef regained the Michelin star her late husband, Shunei Kimura, won three years ago for their Sushi Shunei restaurant in Paris. For Shunei Kimura, the star was a dream come true. However, the joy was short-lived. He died from cancer just three months later in June 2022. He was 65. The following year, the restaurant in the heart of Montmartre lost its star rating. Chizuko Kimura insisted that the new star is still down
While China’s leaders use their economic and political might to fight US President Donald Trump’s trade war “to the end,” its army of social media soldiers are embarking on a more humorous campaign online. Trump’s tariff blitz has seen Washington and Beijing impose eye-watering duties on imports from the other, fanning a standoff between the economic superpowers that has sparked global recession fears and sent markets into a tailspin. Trump says his policy is a response to years of being “ripped off” by other countries and aims to bring manufacturing to the US, forcing companies to employ US workers. However, China’s online warriors