Why is the world economy still so weak and can anything more be done to accelerate growth? Six years after the near-collapse of the global financial system and more than five years into one of the strongest bull markets in history, the answer still baffles policymakers, investors and business leaders.
Last week brought another slew of disappointing figures from Europe and Japan, the weakest links in the world economy since the collapse of Lehman Brothers, despite the fact that the financial crisis originated in the US. But even in the US, Britain and China, where growth appeared to be accelerating before the summer, the latest statistics—disappointing retail sales in the US, the weakest wage figures on record in Britain and the biggest decline in credit in China since 2009—suggested that the recovery may be running out of steam.
As Stanley Fischer, the new vice-chairman of the Federal Reserve Board, lamented on August 11 in his first major policy speech: “Year after year, we have had to explain from mid-year onwards why the global growth rate has been lower than predicted as little as two quarters back … This pattern of disappointment and downward revision sets up the first, and the basic, challenge on the list of issues policymakers face in moving ahead: restoring growth, if that is possible.”
The central message of Fischer’s speech—that central bankers and governments should try even harder than they have in the past five years to support economic growth—was closely echoed by Mark Carney, the governor of the Bank of England, at his quarterly press conference two days later.
This consistency should not be surprising: Carney was Fischer’s student at the Massachusetts Institute of Technology in the 1970s—as, even more significant, was Mario Draghi, president of the European Central Bank. Because of Fischer’s influence on other central bankers, as well as his unparalleled combination of academic and official experience, he is probably now the world’s most influential economist.
When US President Barack Obama appointed him vice chairman of the Federal Reserve, Fischer was widely viewed as more hawkish than Chairwoman Janet Yellen. He was considered a restraining influence on her instinct to focus on jobs and growth rather than inflation control.
So investors and business leaders should pay attention when Fischer makes his first major speech a call for more explicitly growth-oriented monetary policies—a call that other central bankers are already heeding.
Carney made this clear when he surprised financial markets by