The gloom-and-doom brigade has had a second-class crisis. For four years, prognosticators of calamity have eagerly awaited the end. They expected the financial mess and draining recession to become a disaster which would shake the modern global economy to its foundations. It hasn’t turned out that way.
Early in 2009, it looked like the nightmare scenario might come true, at least in part. With investment markets in meltdown, international trade in fast retreat, and politicians stumbling, something truly awful looked plausible. We might have been in for massive inflation, debilitating deflation, a new great depression, even war. But governments and central banks regrouped. They remembered that money could be conjured from thin air and given away in unlimited quantities. The fiscal and monetary machines are still on overdrive. Disasters have been avoided.
The doomsday crowd does have some things going for it. There’s a steady stream of drab news from rich countries, which still account for a little more than half of global GDP, according to IMF data. GDP growth has slowed elsewhere and unemployment remains uncomfortably high in most countries.
The problems of the developed world have impeded growth in many developing economies and may continue to do so. But pessimists are generally on the defensive. Most notably, despite many dire predictions, China refuses to collapse.
Calamity is unlikely in 2013. If anything, the miasma could lift a little. The growth rate is again increasing in China and the drag from the U.S. fiscal cliff shenanigans is unlikely to last long. Euro-sceptics may shake their fists, but the euro zone seems to have found the desire to resolve its long-running crisis. Even Japan may become more aggressive in the fight against deflation.
It would a mistake to get carried away, as the optimists did in the heat of the crisis. In 2009 many so-called experts predicted a rapid snap-back. The distortions of the credit boom years have proven hard to repair. Debt and doubt have slowed restructuring.
Perhaps 2013 will turn out to be the breakthrough year hoped for by optimists. But that looks less likely than the disaster forecast by gloomsters. Expect low-to-no growth in most leading economies.