STOCK MARKET WATCH -- Thursday, 20 September 2012

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48. Global economy is a long way from sustained growth

http://www.guardian.co.uk/business/2012/sep/20/global-economy-long-way-growth


A Lehman Brothers employee leaving the Canary Wharf building after the bank filed for bankruptcy in 2008 Photograph: Rex Features

China's manufacturing sector remained in recession territory for the 11th month in a row. The prospects for industry in the eurozone are getting worse. Despite Mitt Romney's gaffe-strewn campaign, America's faltering economy could yet deprive Barack Obama of four more years in the White House.

For policymakers, these echoes of late 2008 are clearly worrying. Back then, the collapse of Lehman Brothers led to a collapse in industrial production and a sharp contraction in world trade. The current slowdown is nowhere near as severe as that suffered in the winter of 2008-09 but is evidence of just how hard it is to shake off the effects of the financial crisis.

There are three big and interlocking problems. The first is Europe, where repeated application of sticking plaster cannot disguise the fact that economic weakness is spreading from the periphery to the core. The second problem is that little progress has been made in tackling the global imbalances that created the conditions for the crash of 2007. China's current account surplus is well down on its pre-crisis peak, but the growing trade tensions between Washington and Beijing are testimony to the slow pace of rebalancing.

Finally, central banks and finance ministries have already used up large amounts of their available ammunition. China has started to ease policy, cutting the cost of borrowing and giving the green light to local infrastructure projects. But the stimulus is not going to be on anything like the scale seen in 2009-10. The US has just announced its third tranche of quantitative easing while the Bank of England appears to be gearing up for a fifth dose of asset purchasing. Public finances in the west are deep in the red.