Macroscope | Looming US recession puts pressure on others to get growth policies right

It’s not a question of if, but when. Recession is an inevitability in the United States and in several other major industrial nations which are on the brink of two successive quarters of negative growth this year. The problem is that the scope for remedies is limited, with global monetary policy given over to fighting inflation and government budgets severely overstretched from the Covid-19 pandemic.

For a major manufacturing country such as China, which hopes for healthy world trade growth to fuel faster export sales, it could hamper plans for a GDP target of around 5 per cent this year. With global recovery in jeopardy, even greater emphasis is being placed on domestic-driven growth and the need for a much bigger policy push by Beijing.

Easier credit, lower interest rates and even more budget stimulus will be needed to keep growth plans on track. What applies to China is just as true for the advanced economies, if the world is to be spared a deeper downturn this year. The policy spigots must be reopened again, and quickly.

It’s clear from the current data that global economic confidence is starting to slide. Business activity indicators are weakening, inflation has peaked, interest rates are too high and governments are under pressure to rein in excessive deficit spending after years of fiscal overload. The shock waves from recent banking collapses have hardly helped matters, with many global business confidence pointers taking a turn for the worse recently.