|DISAPPOINTMENT BECOMES GLOBAL-GROWTH NORM AS JAPAN CONTRACTS|
Aruba, November 19, 2014 - Group of 20 leaders pledged over the weekend to do everything they can to boost the global recovery. Japan’s descent into a recession is the latest reminder of how elusive that goal is proving to be.
Less than 24 hours after heads of state gathering in Brisbane, Australia, agreed to take measures that would boost their economies by a collective $2 trillion by 2018, the Cabinet Office delivered news in Tokyo that Japan’s gross domestic product unexpectedly shrank an annualized 1.6 percent in the three months through September, the second straight contraction.
Disappointment is becoming routine for the global economy, with the International Monetary Fund last month cutting its 2014 world-growth outlook for the sixth time since January 2013. Weaker expansion stands to add pressure on policy makers including European Central Bank President Mario Draghi who are already pushing the limits of monetary stimulus and governments that are reluctant to increase spending.
“People are misreading the strength of these economies,” said Steven Ricchiuto, chief economist for Mizuho Securities USA Inc. in New York. “Monetary policy is not capable of dealing with a world of excess supply. You need proper fiscal policies and nowhere in the world are we applying proper fiscal policies.”
The IMF’s estimate last month for 3.3 percent global expansion this year is down from a 3.6 percent forecast given a year earlier and 4.1 percent two years ago. The institution, whose next World Economic Outlook update comes in January, previously made similar cuts to forecasts for 2012 and 2013 growth as incoming data trailed expectations.
The fund said in a report last week that major advanced economies, especially the euro area and Japan, “could face an extended period of low growth reflecting persistently weak private demand -- especially investment -- that could turn into stagnation.”