This week, the Economist’s cover line was “On the up,” referring to coverage of a synchronised upturn in global growth. The main story here—which has been echoed by commentators around the world—is quite important. For the first time since the synchronised economic bounce-back after the 2008-09 recession, the global economy is firing on most, if not all cylinders.
So does this mean that everything’s fine? Not quite. But let’s start with the good news, which is indeed something to cheer about.
The global purchasing manager’s index, which aggregates survey data in manufacturing and services for the most important economies in the world, started turning up gently in the middle of last year, and by February 2017 it was at its highest level for over two years. The manufacturing survey was at its highest since 2011. This marks a material change from the two and a half years to mid-2016 in which these indicators declined consistently, indicating the world economy was in a sour state.
In the Euro Area, the improvement has been as marked as anywhere. The composite manufacturing and services survey reading was stronger than at any time since April 2011, just before the euro crisis began in earnest. There is no question that problems remain with Greek debt and Italian banks, but the overall dynamic is different compared to the last few years: moderate growth is coming back and unemployment has fallen from over 12 per cent in 2013 to just over 9.5 per cent.
China has also turned its fortunes around, at least for the time being. Back in 2015 and 2016, financial markets and economic observers were fearful that China was succumbing to not just an economic stall but also a meltdown in its stock and currency markets. But a combination of up to $500bn of financial market support measures, the abandonment of verbal commitments to the use of market mechanisms for a more regulated and controlling policy approach, and a sharp acceleration in infrastructure and quasi-fiscal spending can do wonders to stabilise an economy temporarily. That is precisely what has happened. China can look to its crucial 19th Party Congress later this year in the knowledge that stability should prevail.