While no one wants to defy the narrative of the International Monetary Fund, which postulates another year of below-trend but nevertheless expansionary growth, a growing chorus of individuals is positing that a global recession might be lying in wait. Although trying to divine the true numbers behind China’s economy is truly an act of futility, other global barometers and indicators continue to paint an unenthusiastic outlook for both the real economy and financial markets. Chinese imports and exports are the easiest measures to corroborate the tale of the global slowdown, but also serve merely as a symptom of bigger problems with the state of international trade. Commodity deflation in particular serves as the clearest example of how zero rates saw the financial economy run circles around the real economy while the core rotted from the inside out. Even some of the stronger performers such as the UK are seeing more data points surprise to the downside, defying calls for the Bank of England to go ahead and raise interest rates amid an environment of perceived improvements in economic conditions.
Expectations ahead of tomorrow’s interest-rate decision from the Bank of England are for more Monetary Policy Committee members to adjust their votes in dissent of current policies, which have seen interest rates at a record low 0.50% since March of 2009. While the Bank of England has jawboned early 2016 as the target for its own version of liftoff and “quantitative tightening,” that date may be pushed back as the UK finds itself in a predicament. Weakening external factors are rapidly becoming internal developments as evidenced by the most recently announced drop off in manufacturing and industrial production figures. No one country is immune from the global slowdown. Exporters and importers alike are faced with a similar dilemma. Monetary policies have largely found their limitations and expansion of further measures designed to loosen conditions might not be the remedy. Then again, monetary tightening might be no more the remedy than loosening as the real responsibility lies with governments. While monetary stimulus has in many ways reached its limits, fiscal stimulus is still possible. However, by the time policymakers heed the warnings of central bankers, the dreaded global recession will already have already arrived.