As global economic picture dims, solutions seem out of reach

Published 8:21 am Friday, August 23, 2019

WASHINGTON — As global leaders gather on two continents to take account of a darkening economic outlook, this is the picture they face:

Factories are slumping, many businesses are paralyzed, global growth is sputtering and the world’s two mightiest economies are in the grip of a dangerous trade war.

Barely a year after most of the world’s major countries were enjoying an unusual moment of shared prosperity, the global economy may be at risk of returning to the rut it tumbled into after the financial crisis of 2007-2009.

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Worse, solutions seem far from obvious. Central banks can’t just slash interest rates. Rates are already ultra-low. And even if they did, the central banks would risk robbing themselves of  the ammunition they would need later to fight a recession. What’s more, high government debts make it politically problematic to cut taxes or pour money into new bridges, roads and other public works projects.

“Our tools for fighting recession are no doubt more limited (than) in the past,” said Karen Dynan, an economist at Harvard University’s Kennedy School.

The International Monetary Fund and the World Bank have downgraded the outlook for worldwide growth. On Thursday, Moody’s Investors Service said it expects the global economy to expand 2.7 percent this year and next — down from 3.2 percent the previous two years. And it issued a dark warning: Get used to it.

“The new normal will likely continue for the next three to four years,” the credit rating agency said.

Concerns are rising just as central bankers meet in Jackson Hole, Wyoming, and leaders of the Group of Seven advanced economies gather this weekend in the resort town of Biarritz in southwestern France. A spotlight will shine, in particular, on whatever message Federal Reserve Chairman Jerome Powell sends in a speech Friday in Jackson Hole.

The dour global outlook partly reflects President Donald Trump’s combative trade conflicts with China and other countries.