ST. JOHN’S, Antigua – Five years into the global financial crisis, the US and global economies remain mired in a weak-growth, low-inflation, high-unemployment environment. Debt busts such as 2008-09 are hard to exit from, and recoveries are long and painful. However, three complicating factors make the current environment even more challenging. First, economic growth models lie broken across developed and emerging economies alike, with the United States deleveraging from its debt-fuelled consumption excesses, the European Union locked in a fiscal and currency straitjacket and China (and emerging economies more broadly) transitioning from export-led to domestic-demand-led growth. Second, globalisation is in retreat as financial institutions retrench. And third, debt levels remain highly elevated in the developed economies, leading policymakers to rely almost exclusively on monetary policy to buffer the necessary deleveraging process. The current policy mix of easy money and tight fiscal conditions, however, produces the worst of both worlds: stagnant global growth and increased risk of financial asset bubbles alongside rising prospects for beggar-thy-neighbour tendencies (already somewhat evident in global currency markets).
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