The world economy is growing, and populists can take advantage of this - The Economist

20 March 2017, 14:08 | Economy
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Economics and politics are usually not synchronized. This can be confirmed by George HW Bush, who lost the presidential election in 1992, because voters accused him at the beginning of the recession.

German Chancellor Gerhard Schroeder will agree with him, whose voters were kicked out of the chair of the government due to the start of painful reforms. As a result, the fruits of his work reaped Angela Merkel.

Today, almost 10 years after the most severe crisis since the Depression, there is finally a large-scale economic recovery.

This is written by The Economist, adding that in America, Europe, Asia and emerging markets, for the first time after a slight rebound in 2010 there is a simultaneous growth.

But the political mood is not too bright. Populists, who for years were fed by discontent from weak economic indicators, continue their rise. Globalization has lost popularity. Economic nationalists are sitting in the White House. Last week, attention was focused on the parliamentary elections in the Netherlands, in which the Islamophobe Gert Wilders.

The publication notes that the dissonance between the political and economic spheres is dangerous. If populist politicians receive a credit of trust due to the fact that during their work there will be positive economic dynamics in the world, their dangerous ideas can get more support. And this, in turn, can lead to devastating consequences.

The publication indicates the reasons why the global economic recovery is observed right now. The past decade was marked by empty expectations of prosperity, as optimism at the beginning of the year was often not justified due to the crisis in the euro area, the turmoil in emerging markets, the rapid decline in oil prices and fears that China's economy will collapse. The US economy continued to grow, but always in defiance of. In 2016, the US Federal Reserve four times was going to raise interest rates. And each time global fluctuations put an end to these plans.

Now the situation has changed. Last week, the US Federal Reserve raised interest rates for the third time in three months due to the liveliness of the US economy, but also thanks to economic growth around the world. Fears of overproduction in the PRC and devaluation of the RMB decreased. In Japan, in the fourth quarter of last year, the growth rate of capital expenditures was the highest for three years. At this time, the eurozone began to gain momentum for the first time since 2015. The index of economic sentiments of the European Commission is the highest since 2011. And unemployment in the euro area at the lowest level since 2009.

Other global economic leaders also demonstrate positive dynamics. In February, South Korea recorded an increase in exports by 20%. Taiwanese manufacturers increased production for 12 consecutive months. Even the countries that suffered most from the recession felt that the worst was over. The Brazilian economy contracted for eight consecutive quarters. But she also managed to curb inflation, and interest rates began to decline gradually.

The publication writes that Brazil and Russia are likely to make their contribution to global GDP this year. The Institute of International Finance noted that in January developing countries showed the fastest monthly growth since 2011.

However, it can not be said that the world economy is returning to normal. Oil prices on March 15 fell by 10% due to renewed fears of a glut of the market. The damage from a prolonged collapse in prices for producer countries would be greater than the benefit for consumers. Outside of America salaries are still growing too slowly. And in America, a decline in confidence in the business climate can still develop into a reduction in investment.

Strengthening global economic recovery requires balanced action. Against the background of the expected inflation growth, central banks will have to tighten policies aimed at reducing risks from excessive inflation acceleration, otherwise stock exchanges and bond owners will suffer. Europe is particularly vulnerable to this, because the European Central Bank is approaching the limit of its ability to buy bonds.

But the biggest risk is lessons that stem from the political sphere. Donald Trump shows off good numbers. And it's true that stock exchanges and business sentiment are quickened because of its promises to deregulate and reduce the fiscal burden. But Trump's claims that it was he who in some magical way gave the impetus to create jobs is an empty praise. The American economy has been demonstrating job growth for 77 consecutive months.

The most important thing is that the economic recovery has nothing to do with the economic nationalism of Trump and his policy "America is above all". In fact, this growth derives strength from what modern populists condemn.

Economists have always pointed out that recovery from financial crises takes a long time. Harvard University experts Carmen Reinhart and Kenneth Rogoff evaluated 100 banking crises. They came to the conclusion that the return to pre-crisis incomes comes not earlier than in 8 years. Also, economists believe that the best way to accelerate recovery after the debt crisis is to clear the budget balance as soon as possible, not to resort to tightening the nuts in financial policy and to carry out fiscal stimulation, if possible.

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