{"id":59844,"date":"2012-04-24T14:20:12","date_gmt":"2012-04-24T04:20:12","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/04\/24\/a-fragile-and-fickle-recovery\/"},"modified":"2012-04-24T14:20:12","modified_gmt":"2012-04-24T04:20:12","slug":"a-fragile-and-fickle-recovery","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/04\/24\/a-fragile-and-fickle-recovery\/","title":{"rendered":"A Fragile And Fickle Recovery"},"content":{"rendered":"<p>\n\tBy <span class=\"scayt-misspell\">Karim<\/span> <span class=\"scayt-misspell\">Foda<\/span> and <span class=\"scayt-misspell\">Eswar<\/span> Prasad<\/p>\n<p>\n\t<em>The world economy is showing scattered signs of improvement but remains fragile according to official forecasts. This column <span class=\"scayt-misspell\">summarises<\/span> the latest update of the Brookings Institution-FT Tracking Indices for the Global Economic Recovery. It confirms some positive signs but also much to worry about as the world economy continues to meander with no clear sense of direction.<\/em><\/p>\n<p>\n\tThe world economy remains on life support, largely provided by accommodative central banks.<\/p>\n<ul>\n<li>\n\t\tConcerns about spillovers from a worsening of the European debt crisis and slowing growth in key emerging markets are putting a <span class=\"scayt-misspell\">dampener<\/span> on consumer and business confidence.<\/li>\n<li>\n\t\tEquity markets are pulling back from a robust performance in the first quarter of this year as the sobering reality of a continued <span class=\"scayt-misspell\">anaemic<\/span> recovery dampens investors&rsquo; optimism.<\/li>\n<\/ul>\n<p>\n\tIn short, the world economy is showing scattered signs of improvement but remains fragile according to official forecasts (IMF 2012 and OECD 2012).<\/p>\n<p>\n\tThe official forecasts, however, are always something of a black box. A newly created index &ndash; the Brookings Institution-FT index for the world economy, christened &lsquo;TIGER&rsquo; (Tracking Indices for the Global Economic Recovery) &ndash; aims to provide a better handle on the global economy.<\/p>\n<p>\n\t<strong>What is TIGER?<\/strong><\/p>\n<p>\n\tIn the midst of a recovery, it is often the case that various economic indicators yield different perspectives on the strength of an economy and underlying trends. Different types of variables can be helpful in getting a broad perspective on where an economy is in the business cycle and where it may be headed.<\/p>\n<p>\n\tTracking the global economy is facilitated by having consistent and comparable data across countries. To this end, we have gathered data from most of the <span class=\"scayt-misspell\">G20<\/span> economies for three types of indicators.<\/p>\n<ul>\n<li>\n\t\tReal economic activity<\/li>\n<\/ul>\n<p>\n\tThis is captured by GDP, industrial production, employment, imports and exports.<\/p>\n<ul>\n<li>\n\t\tFinancial market indicators<\/li>\n<\/ul>\n<p>\n\tThis includes national stock market indices, stock market <span class=\"scayt-misspell\">capitalisation<\/span>, credit growth and, in the case of emerging markets, their bond spreads relative to US treasuries.<\/p>\n<ul>\n<li>\n\t\tConfidence<\/li>\n<\/ul>\n<p>\n\tThis category includes survey-based measures of business and consumer confidence, which are relevant for <span class=\"scayt-misspell\">gauging<\/span> the prospects for aggregate demand growth.<\/p>\n<p>\n\tTIGER is the combination of these variables (our methodology, using principle components, is explained in detail <a href=\"http:\/\/www.ft.com\/intl\/cms\/f25d0a2e-857d-11e1-90cd-00144feab49a.pdf\">here<\/a>). In addition to the global index, we have indices for each country, so TIGER allows us to take the pulse of the world economy as well as individual economies. We have also constructed indices broken down by indicator allowing us to examine, for instance, how business and consumer confidence are doing across the world (see Prasad and <span class=\"scayt-misspell\">Foda<\/span> <span class=\"scayt-misspell\">2012a<\/span> and Prasad and <span class=\"scayt-misspell\">Foda<\/span> <span class=\"scayt-misspell\">2012b<\/span> for more details).<\/p>\n<p>\n\t<strong>Key themes from the latest update of TIGER<\/strong><\/p>\n<p>\n\tFollowing a brief surge in activity, the world economy has once again been beset with worries about risks on multiple fronts. In recent months, the overall TIGER index shows continued declines for advanced and emerging economies alike (see Figure 1).<\/p>\n<p>\n\t<img decoding=\"async\" alt=\"\" src=\"http:\/\/www.fnarena.com\/ckfinder\/userfiles\/images\/vox24-4a.jpg\" style=\"width: 700px;height: 302px\" \/><\/p>\n<p>\n\tLooming risks and the lack of policy space in advanced economies is taking a toll on economic activity as well as confidence.<\/p>\n<p>\n\tIn advanced economies, there is considerable uncertainty about what room is left for aggressive policy responses:<\/p>\n<ul>\n<li>\n\t\tWith fiscal policy already in a tight spot and monetary policy out on a limb in these economies, the room to boost domestic demand is limited.<\/li>\n<\/ul>\n<p>\n\tThe <span class=\"scayt-misspell\">Eurozone<\/span> debt crisis, which has eased temporarily due to massive intervention by the <span class=\"scayt-misspell\">ECB<\/span> as well as promises of fiscal discipline and structural reforms in the distressed economies, remains the major source of global risk.<\/p>\n<ul>\n<li>\n\t\tMany European economies are being forced to restructure their public finances even as they venture to undertake massive structural reforms.<\/li>\n<\/ul>\n<p>\n\tThis is stifling growth, worsening debt-to-GDP ratios in the short run, and generating an unsustainable political situation at the domestic and pan-European levels.<\/p>\n<p>\n\tAmong advanced economies, the US economy remains one bright spot but there are few others that show signs of self-sustaining demand growth.<\/p>\n<p>\n\tThe US recovery is gradually firming up but remains fragile.<\/p>\n<ul>\n<li>\n\t\tOutput growth has been modest at best, but the unemployment rate continues to drop and employment growth has begun to pick up, even if haltingly; the pace still leaves total employment below its pre crisis level.<\/li>\n<li>\n\t\tEquity markets turned in a good performance in the first quarter of the year and credit growth has picked up.<\/li>\n<\/ul>\n<p>\n\tThese are helping to give a small, but noticeable boost, to consumer and business confidence.<\/p>\n<ul>\n<li>\n\t\tJapan remains mired in weak growth.<\/li>\n<\/ul>\n<p>\n\tMany countries in the <span class=\"scayt-misspell\">Eurozone<\/span> are in recession.<\/p>\n<ul>\n<li>\n\t\tFrance is on the edge of recession; and<\/li>\n<li>\n\t\tEven the mighty German economy is showing signs of stumbling.<\/li>\n<\/ul>\n<p>\n\tEmerging markets continue to perform better than advanced economies but their growth momentum is also slowing (see Figure 2).<\/p>\n<ul>\n<li>\n\t\tChina seems to be engineering a soft landing for its economy.<\/li>\n<\/ul>\n<p>\n\tThis will not be a smooth process as the economy continues to be buffeted by domestic policy challenges and uncertainties in the global trade and financial environment.<\/p>\n<ul>\n<li>\n\t\tIf growth were to slow sharply, China has room to respond with aggressive expansionary policies.<\/li>\n<\/ul>\n<p>\n\tThis would secure short-term growth but could set back the long-term goal of rebalancing economic growth and making it less reliant on investment.<\/p>\n<ul>\n<li>\n\t\tIndia has hit a rough patch.<\/li>\n<\/ul>\n<p>\n\tIts industrial production growth has hit a wall at the end of 2011, output growth has slowed sharply, and the current-account deficit has been widening and leaving the economy vulnerable to capital-flow reversals.<\/p>\n<ul>\n<li>\n\t\tBrazil, Russia, and most other emerging market economies have also experienced slowdowns in GDP growth, with industrial production growth taking a sizable hit.<\/li>\n<\/ul>\n<p>\n\t<img decoding=\"async\" alt=\"\" src=\"http:\/\/www.fnarena.com\/ckfinder\/userfiles\/images\/vox24-4b.jpg\" style=\"width: 700px;height: 252px\" \/><\/p>\n<p>\n\tFinancial markets around the world posted a strong performance in the first quarter of 2012 as it appeared that significant steps were finally underway to tackle the <span class=\"scayt-misspell\">Eurozone<\/span> crisis and the world economy had finally turned the corner (see Figure 3). However, developments in the <span class=\"scayt-misspell\">Eurozone<\/span> and elsewhere have thrown cold water on this optimism, leading to a weakening of financial indicators in recent weeks.<\/p>\n<p>\n\t<strong>Figure 3.<\/strong> Financial Index<\/p>\n<p>\t<img decoding=\"async\" alt=\"\" src=\"http:\/\/www.fnarena.com\/ckfinder\/userfiles\/images\/vox24-4c.jpg\" style=\"width: 700px;height: 239px\" \/><\/p>\n<p>\n\t<strong>Conclusion<\/strong><\/p>\n<p>\n\tFour years after the financial crisis drove the world economy to the brink, the pervasive sense of imminent doom has given way to cautious and nervous optimism. However, the global economic recovery is still sputtering due to a lack of robust demand, policy tools that are stretched to their limits and unable to muster much traction, and enormous risks posed by weak financial systems and political uncertainty.<\/p>\n<p>\t<strong>References<\/strong><\/p>\n<p>\tIMF (2012), &ldquo;Growth Resuming, Dangers Remain&rdquo;, <span class=\"scayt-misspell\">WEO<\/span> IMF, 17 April.<br \/>\n\tOECD (2012), &ldquo;What Is The Economic Outlook for OECD Countries?&rdquo; 29 March.<br \/>\n\tPrasad, <span class=\"scayt-misspell\">Eswar<\/span> and <span class=\"scayt-misspell\">Karim<\/span> <span class=\"scayt-misspell\">Foda<\/span> (<span class=\"scayt-misspell\">2012a<\/span>), &ldquo;April 2012 Update for TIGER: Tracking Indexes for the Global Economic Recovery&rdquo;, The Brookings Institution.<br \/>\n\tPrasad, <span class=\"scayt-misspell\">Eswar<\/span> and <span class=\"scayt-misspell\">Karim<\/span> <span class=\"scayt-misspell\">Foda<\/span> (<span class=\"scayt-misspell\">2010b<\/span>), &ldquo;Interactive: Tracking the global economic recovery&rdquo;, FT.com.<\/p>\n<p>\n\t<span class=\"scayt-misspell\">Karim<\/span> <span class=\"scayt-misspell\">Foda<\/span> is a Research Analyst at the Brookings Institution and <span class=\"scayt-misspell\">Eswar<\/span> Prasad is <span class=\"scayt-misspell\">Tolani<\/span> Senior Professor of Trade Policy at Cornell University, Senior Fellow of the Brookings Institution and Research Associate, <span class=\"scayt-misspell\">NBER<\/span><\/p>\n<p>\n\tCopyright VoxEU.org &#8211; the above story was originally published on www.VoxEU.org &#8211; readers reading this story through a third party channel may find that any graphs are not included (our apologies for this technical anomaly) &#8211; here&#039;s a link to the original story on the <span class=\"scayt-misspell\">VoxEU<\/span> website: click <a href=\"http:\/\/www.voxeu.org\/index.php?q=node\/7901\">HERE<\/a><\/p>\n<p>\n\t<em>Find out why <span class=\"scayt-misspell\">FNArena<\/span> subscribers like the service so much: &quot;<a href=\"..\/index4.cfm?type=dsp_newsitem&amp;n=29EB960D-9DFF-C00E-7F6B464E5D52E250\">Your Feedback (Thank You)<\/a>&quot; &#8211; Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Respected economists Karim Foda and Eswar Prasad note while the global economy is showing signs of improvement the recovery remains fragile.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5],"tags":[],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59844"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=59844"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59844\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=59844"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=59844"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=59844"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}