It Could Be Worse: Five Things to Be Thankful for in a Wobbly World Economy

November 25, 2015 11:45 AM

It's all too easy these days to be pessimistic about the global economic outlook in a post-crisis world that has shown itself prone to persistent scrapes and bruises.

But in the spirit of Thanksgiving, perhaps it's time to try to take a glass half-full (of wine?) approach to gauging global economic performance. Here are five things to be moderately thankful for over the long festive weekend, as recent blog posts by PIIE experts suggest.

  1. The US economic recovery is now well into its sixth year, having officially started in the summer of 2009. And while it has been anemic compared to past rebounds, the expansion has been remarkably consistent. Just look at this morning's revision to third-quarter GDP, which raised its growth rate to 2.1 percent from 1.5 percent, much closer to the recent trend. Unemployment, for its part, has fallen to 5 percent, a level many Fed officials believe is consistent with "full employment."

  2. China's economy appears to be struggling, but it has yet to fall out of bed. Sure, there are doubts about the veracity of China's economic statistics. But one thing is clear: Heavy government intervention did manage to stabilize a stock-market plunge that started to have global reverberations. And most economists still believe the Chinese government has the firepower—and political will—to deliver further fiscal stimulus that can keep growth firing on enough cylinders not to become a drag on the global economy. Moreover, there are signs that too much emphasis has been placed on the industrial sector's weakness and too little on growing services businesses.

  3. Remember when the threat of a euro area breakup seemed to be a daily occurrence? For better or worse, the 11th hour deal with the Greek government, while perhaps short on delivering a long-term solution, has at least stalled the panic that prevailed between much of 2010 and 2014. The euro area is still intact and looks to remain that way for the foreseeable future. Growth remains a challenge as the latest figures show, but the prospect of further monetary easing from the European Central Bank is keeping borrowing costs very low and at least engendering the conditions for a possible recovery.

  4. Emerging markets could see a turnaround if the Fed's interest rate goes relatively smoothly. Granted, this would mark the central bank's first tightening of monetary policy since June 2006, so smooth sailing is a fairly big if. But markets, in accordance with the old adage of buying the rumor and selling the fact, tend to have accentuated reactions ahead of major policy moves that often get reversed after the action takes place. Given the sheer speed of recent selling in emerging-market currencies and bonds, at least a temporary reprieve may be in store after the novelty of a Fed that is tightening policy (likely at a very cautious pace) wears off.

  5. Policymakers in emerging economies are not helpless in addressing the vagaries of capital flows that come in part as a result of aggressive monetary policy easing in the United States, Europe, Japan, and the United Kingdom. That's what the latest research from Olivier Blanchard, senior fellow here at the Institute and until recently the International Monetary Fund's chief economist, suggests. He finds that targeted foreign exchange rate intervention can be a "valid policy tool for macroeconomic management ." Those findings are broadly in line with those of Federal Reserve economist Steve Kamin, presented at a PIIE conference in October.