Are things about to get ugly for the global economy?

“When I was at university, I had a poster in my room which said “Cheer up – the worst is yet to come!” That was how Marias Maratheftis, Chief Economist, Standard Chartered, opened this session examining whether the world economy is heading for dangerous waters. His keynote speech went on to assess whether the poster would be appropriate today with so many economists pessimistic about the future.

Marias told the session he would present the bad news first. “When it comes to global growth in 2016, we think it will be about 2.5%. A very disappointing performance from the world economy. Boring, boring growth from the world economy 7 years after the global financial crisis.”

Poor growth was down to lack of demand, Marias explained, and the policy response to boost demand had been inadequate with austerity in Europe and a lack of determination to go ahead with more stimulus in the US. “All the heavy lifting has been left to the central banks but central banks alone cannot stimulate growth.”

There was more bad news, he said, in the fact that with low interest rates, the traditional rate-cutting stimulus measures were no longer available.

Moving on to the good news, Marias said that despite a disappointing growth rate, money supply data suggested there was enough in the world economy to avoid recession. “So that’s the first piece of good news – in the absence of any shocks and if we stop talking ourselves into a recession, a recession should be avoided in the world economy.”

Marias predicted three other pieces of good news: China meeting GDP growth targets, no further rate rises from the Federal Reserve and a rebound in oil prices later this year to around $60 a barrel. “Our position for 2016 is retreat, regroup and rebound. We’ve seen the retreat. If we’re correct about the Fed and oil prices, we are now in the regroup period and we should be expecting rebound later on in the year.”

The panel discussion that followed looked at whether China’s RMB was overvalued. Patrick Chovanec, Chief Strategist, Silvercrest Asset Management, thought it was. “I do think China’s currency is overvalued simply in the prima facia way that the currency wants to fall because of the capital outflow issue. But the currency needs to be overvalued because that’s the way you take the reserves and the over-savings that exist within the Chinese economy and translate it into purchasing power in order to shift the economy towards a more household-driven kind of growth.”

The role of the world’s central banks since the global financial crisis came under scrutiny from Michael Blythe, Chief Economist & Managing Director of Economics, Commonwealth Bank. “Central banks have proved to be very inventive in the new measures they can come up with. I think the question really is should they keep pushing down that path or is it time to take some of the pressure off monetary policy and get other forms of economic policy to take up the load.”

“Is the worst still to come? Maybe, but I reserve the right to be a bit more optimistic.”

Freya Beamish, Economist, Lombard Street Research, agreed. “We are starting to move into different forms of government policy and I think that the frontier we are reaching is between monetary policy and fiscal policy. What we have is finally a recognition over the course of 2016 that monetary policy is incapable of addressing structural imbalances and we start to see an almost ‘back-to-the-future’ move in the re-emergence of current account surpluses as a driver of currencies.”

The issue of population growth was key to understanding growth, according to David Carbon, Chief Economist & MD, Economic & Currency Research, DBS Bank. “One of the things I think people are not paying attention to is how fast population growth has fallen. Not just population growth but the fact that people are getting older and older. You put those two together and what it means is working age population is slowing a lot faster than population growth overall. GDP growth is the sum of productivity growth and labour force growth. Everyone is worried about this crisis of small growth in developed countries but this may be as good as it gets.”

The session ended with a reminder from David Carbon that despite all the talk of low growth, Asia continued to be a success story. “In the 4 years after Lehman Brothers, Asia continued to grow at a pretty decent rate and the amount that it grew by was equivalent to an entire Germany, three and a half trillion dollars. Asia did that in the middle of the biggest crisis in a hundred years with no help from Europe, with no help from the United States. By 2025 Asia is going to be putting an entire Germany on the economic map every two years. This is a huge amount of growth.”

Asked to sum up his thoughts on the future, Marias Maratheftis put it like this: “Is the worst still to come? Maybe, but I reserve the right to be a bit more optimistic.”