Green shoots will not mean healthy roots

[CHIMO]

Clearing up the mess in the global economy was never going to be simple. In the six months since the October meetings of the International Monetary Fund and World Bank there has been the sharpest and most widespread decline in activity since the 1930s. Last autumn, the Fund was expecting global growth of 3% this year; now it is pre­dicting a contraction of 1.3%.

The downgrades for individual countries have been equally savage. Japan's projected growth of 0.5% has been turned into a 6.2% plunge in output; the modest 0.1% drop in Britain is now projected to be a 4.1% crash – worse than any year since 1945.

Yet chastened as they undoubtedly are, there is no real sense that policymakers have yet fully got to grips with the crisis. There is far too much focus on whether there are short-term signs of recovery rather than on whether the long-term causes of the downturn have been resolved.

Let's just recap on how we arrived at this juncture. Globalisation has led to the development of two groups of countries – those running big trade surpluses and those running big trade deficits. Germany and Japan provided the machines and high-grade capital goods that allowed China to become the source of low-cost manufactured goods. Countries where the industrial sectors had been hollowed out over the decades – such as the United States and Britain – were ready buyers for cheap imports. Inflation fell, allowing interest rates to fall.
http://www.guardian.co.uk/business/2009/apr/26/larry-elliott-global-economy-reform