Whether
a glass is half full or half empty depends on who is looking at it and from
which angle. On the economic front, recent data and the near-term outlook argue
in favour of “half full”.
Growth is resilient in the developed economies and
recent releases for the Eurozone have surprised on the upside. Even Japan is
looking better. The developing economies have shown some improvement, although
the picture is very heterogeneous. The growth slowdown in China has been halted
temporarily, in India growth is expected to increase slightly and the outlook
for Brazil and Russia has improved with the prospect of leaving the recession
behind.
Yet international organisations make a “half empty” assessment. The BIS
is concerned about financial market dissonance, the OECD has issued a global
growth warning, and last week’s World Economic Outlook from the IMF emphasises
a “subdued outlook subject to sizeable uncertainty and downside risks.” Much of
this has to do with “looking at the glass” from a different angle, i.e., with a
longer term perspective: the slowdown in potential GDP growth and global trade,
the too-high rate of unemployment, particularly among the youth, the reduced
effectiveness of monetary policy, and high levels of public sector debt that
limit policy leeway.
In addition, political uncertainties (Brexit, elections)
have increased. With the risks and uncertainties having been well identified,
it is now up to economic policy to take them on board. For monetary policy,
this implies the ECB keeping its hand on the throttle and the Fed touching the
brakes, but very gently.