Yes, a new crisis is coming – and here’s why
- Shortening economic cycle means more frequent crises
- ‘Great Divergence’ model saw China assuming the US’ leadership role
- We have likely reached the limits of adjusting monetary policy
- States have compromised a return to growth due to debt
Occupy Wall Street may been been a popular response to the financial crisis, but Wall Street was never actually occupied and business largely continued as usual. Photo: iStock
The oracles predicting an impending new global crisis are countless. Over the last two decades, economic cycles have been shortened due to deregulation, the financialisation of the economy, trade globalisation, and the acceleration of innovation cycles. During the last 25 years, the US economy has experienced three recessions: in 1991, 2001 and 2009. The outbreak of a new crisis in the coming years is inevitable. To forecast it amounts to acknowledging that capitalism now moves in cycles shorter than 10 years. There is no glory in that.
Here are four macroeconomic scenarios for 2016:
Until recently, the consensus assumed a strengthening of the global economy in 2016. Various downward revisions of growth forecasts by major international organisations, however, confirm that this assumption is becoming less and less likely.
Gross domestic product growth momentum, particularly in the US, is still the main driver of global growth. It is also weaker than it used to be during the previous recoveries, as shown by potential GDP growth which has been reduced to 2% for the 2015-2015 period, compared to 3% for 2000-2007.
The weakness of this recovery can be seen in the substantial slowdown of international trade growth. The increase of global imports in volume is significantly lower compared to the years from 1992 to 2008. The adverse effects of the subprime crisis still influence global dynamics.
The prospect of a new crisis brought the Great Divergence theory back to life. However, this circumstance has failed to materialise. In 2008, this model was steadily evoked but didn’t happen because it is based on the illusion that Asia, and particularly China, will prove able to take over from the US.
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