Economic statistics are closely watched by analysts in order to gauge the health of an economy. These are important for the purposes of policy formulations and conducting an analysis of the success or failure of a particular policy. These statistics assume an increased importance in the times of weakened economic activity, which in economics’ lexicon is termed as a recession. In 2008, western economies were struck by a severe recession with global repercussions. Global economic activity has yet to recover to the normal levels of the pre-2008 period. Of late, economic statistics coming in from various parts of the world have painted a discouraging picture of the health of the global economy, especially in the western hemisphere. There are fears that we may be headed for further turbulence. Particularly worrying for policymakers and analysts around the world are the numbers related to global trade, China and the weak response to countercyclical efforts by governments around the world. The recession that struck the global economy was the most severe since the Great Depression of 1929 which left a lasting legacy of misery and hardship. In 2008, when the recession reached its peak, stock market crashes around the globe caused a loss of $30 trillion. Unemployment surged, production went down, new investments came to a standstill and many organisations went bankrupt – the future became less certain. Governments immediately stepped in to halt the slide with two of the most effective and traditional weapons in its armory: fiscal and monetary policies. These two policies were largely the outcome of the aftermath of the Great Depression, and have effectively been used since then to cure bouts of recessions. The US and the EU have been the major exponents of these two methodologies. The US government and the US Federal Reserve have ploughed trillions of dollars into the US economy since 2008 in the form of fiscal and monetary stimulus. But more than six years into these monumental efforts, the largest economy in the world has barely recorded a growth rate of above two percent and inflation has remained quite low. The EU economies, except for Germany, present more or less the same predicament. Growth has been anemic and inflation is still very low. In fact, there is a serious risk of deflation (a decrease in prices). Readers who are unfamiliar with economics may find this concern over decreasing prices a bit perplexing and hard to fathom, which is understandable since Pakistanis have been subjected to some of the worst bouts of high inflation. To them, decreasing prices are always a welcome reprieve. It might come as a surprise to many, but deflation is unanimously considered to be more dangerous than inflation. Without going into the technical details, it will be worthwhile to remember that a sustained decline in prices has the ability to curtail the productive capacity of the economy, which can ultimately lead to a complete collapse. That is why one of the primary goals of all central banks is the maintenance of a certain level of inflation. Nowhere will anybody see a sustained decline in prices as a monetary policy goal. As far as trade is concerned, the numbers seem to be decreasing. This year alone saw a drop of around 10 percent in overall global trade. Any economy that is critically reliant on exports, like that of Pakistan, will find it difficult to cope with the curtailed aggregate demand. Lesser demand for products means lesser foreign exchange earnings, which imply balance of payment problems. Ultimately, these kinds of situations lead countries to turn to donor institutions like the IMF to avoid a default on its debt payment obligations. China has remained a bulwark against the recession turning into a major catastrophe till now. People seem to be enamored with the idea that China is all about exports with little imports to speak of. Yet at present, China is the second largest importer in the world. This change in the nature of the Chinese economy has certain repercussions, a major one being that countries that are key exporters to China become substantially reliant on its domestic outcomes. A negative outcome means lesser demand for imports, implying that production in the exporting country may suffer. This constitutes a double whammy since less production means less income and fewer jobs, thus leading to lower aggregate demand in the exporting country. Thus, lower production and income growth in one country leads to lower production and lower income in another country. That is the nature of intertwined global markets. The statistics emerging from China don’t paint a rosy picture at all. Chinese exports are gradually seeing a decline. They fell by almost four percent in September and then eight percent in October compared to last year. The statistics related to the decline in its exports are reflected in the drop in the China Containerised Freight Index (CCFI), which traces containers shipped from China to global destinations. Since its inception in 1998, it has only recently dropped to a historic low of 742, reflecting a weakness in the global demand. Its imports have registered an even higher decline by an estimated 20 percent in September and October. The recent stock market scare in China, coupled with the slowing GDP growth, forced the government to initiate a huge fiscal stimulus to stop the slowdown. Yet the stimulus, which did help prevent the Chinese economy from sliding further in the wake of its stock market scare, has not propped up aggregate economic activity substantially. It’s not just China where these weaknesses are showing up. Other export powerhouses like Germany and South Korea have also been witnessing a decline in their exports. The Dutch Government Index, which traces the global trade of commodities, fell to 114. This reflects a clear reduction in the global commodities trade, again signaling a slowdown in trade across the world. The relative ineffectiveness of fiscal and monetary policies, coupled with a slowdown in trade, presents a real threat to the global economic order. When the first few years in the aftermath of the Great Depression failed to cure the economic malaise, some of the worst forms of protectionism ever witnessed were introduced. This almost led to a total collapse of trade and acrimony between nations. In 2008-2009, the global economy contracted at rates that had not been seen since the Great Depression. And like the Great Depression era, the failure to sustain the earlier growth momentum has led many to swerve towards protectionist tendencies. It would suffice to say that the global economy can hardly afford another bout of recession which can upend the economic relations between countries. Compared to 1929, policymakers have relatively more options at their disposal now. The challenge is to implement one that can reinvigorate global economic growth. The writer is a freelance contributor. Email: shahid.mohmand@gmail.com Twitter: ShahidMohmand79
