In recent days international news have been flooded with stories about volatility in global equity markets and there has been a vivid discussion about what this means for the global economy. Is this just a correction in Chinese stock markets which has led to shifting investments around the world? Or has the experience of recent days been the symptom of a deeper economic malaise? Social Europe asked some leading economists about their opinions.
Gustav Horn of the IMK in Düsseldorf said:
The Chinese bubble burst. This of a wider global importance only in the sense that we are still not able to detect these kind of problems early enough to prevent a panic reaction.
Dean Baker of the CEPR in Washington DC:
The main story is a simple one of a bubble in China’s market bursting. This raises legitimate questions about China’s near-term growth path. If China’s economy slows significantly it will be a problem for countries that are major exporters to China, but not for the U.S. and Europe. The impact there will be fairly limited. My guess is that financial markets elsewhere in the world largely recover from the hit of the last few days, although they had been somewhat high, so there may not be a full recovery.
Ann Pettifor of Prime Economics:
The 2007-9 global financial crises was caused by an economic model based on financial de-regulation and liberalization, privatization of taxpayer-financed assets, excessive private indebtedness and wage repression. That economic model has not undergone fundamental or even superficial change since then. The failure to reform or transform this flawed economic model is causal of today’s crisis, as it was of the 2007-9 crisis.
China is no longer able to help central bankers keep western economies alive. The model has led to a a surfeit of private debt, to a deficiency of global demand. The collapse in commodity prices signals a debt-deflationary period of stagnation (or worse) ahead. Until politicians, central bankers, economists and officials recognize this reality, and take action to reform and transform the existing economic model, there will be no cure for volatility, deflation and market failure. Stephen King of HSBC has warned: “the global economy is a ship sailing the seas of volatility with no lifeboats.”
So yes, I beg to differ with the equanimity with economists analysis this week’s stock market volatility. Because of the failure to deal with the causes of financial crises and market failure this is not just a correction. The global economy is sailing into dangerous waters.
As you might have guessed there is no agreement about what this week’s events mean overall. But this in itself is a signal for significant risks in the global economy. We have weaved such a tight global economic net that nobody seems to be able to properly monitor the risks and predict whether tremors are merely local or have serious global ripple effects. It might finally be time to disentangle parts of the net and make the interconnections more transparent.