Illustration: Luo Xuan/GT
The global economic slowdown is turning into a synchronized stagnation, with some major economies growing only weakly and others barely at all - or even contracting slightly. For now at least, fears of an imminent global recession seem premature. But policymakers have little appetite for fundamental reforms and limited room for effective macroeconomic stimulus, and thus seem at a loss for ways to revive growth.
The roots of the slowdown are not difficult to discern. Persistent trade tensions, political instability, geopolitical risks and concerns about the limited efficacy of monetary stimulus continue to erode business and consumer sentiment, thus holding back investment and productivity growth. International trade flows have been directly affected as well. The WTO recently slashed its forecast for global trade growth in 2019 from 2.6 percent to just 1.2 percent. Furthermore, the Baltic Dry Index, a widely watched trade metric based on shipping rates for dry bulk commodities, nearly doubled in the first eight months of this year, but has since fallen by about 30 percent, erasing hopes of a trade rebound.
Meanwhile, global uncertainty has kept the US dollar strong relative to most other major currencies. Although dollar appreciation has taken some pressure off non-US economies that depend on exports or foreign capital, it has increased the risk of an open currency war.
At the same time, not all indicators are grim. Labor markets remain largely healthy, even in otherwise anemic economies such as Germany, and household consumption remains strong in most major economies. In addition, the September surge in oil prices, which had raised concerns of another negative shock to growth, has since receded.
The US economy reflects this dichotomy. Labor-market performance and household consumption are still relatively robust, but both the manufacturing and...