Current economic indicators suggest that economic momentum has passed its peak. While economic recovery continues, it is proceeding at a more measured pace than in recent quarters. There are a number of reasons for this:
•The very strong growth momentum witnessed in many countries over the last few quarters has to be viewed, in part, in the context of the abrupt economic slump (in late 2008) that preceded it. Obviously, this sort of growth momentum is impossible to maintain once the economy has made up for a major part of the losses triggered by the confidence shock. A slowdown has to be expected with respect to inventory demand and the speed of world trade expansion.
•The growth seen in recent quarters was fanned by economic stimulus packages that are now gradually being unwound. So the global economy will have to do without this source of stimulus in the future. And that's not all: the sovereign debt crisis in the euro area has drastically exposed the profound fiscal challenges facing many industrial economies. Fiscal tightening, which in some countries like Greece, Spain, Ireland or the UK is quite drastic, is likely to put a damper on economic growth for some time to come.
•Past experience suggests that recoveries from recessions triggered by financial crises tend to be slower than normal as it takes time for nonfinancial and financial sectors alike to de-leverage and repair their balance sheets.
Global economy: Growth slips down a gear
Dr. Michael Heise
e-mail: michael.heise@allianz.com