The global economy is weak and getting weaker, due in large part to the same policies that helped bring the world back from the brink just a few years ago.
Measures like lowering interest rates and creating money for central banks to conduct trillions in asset purchases are “now seen as a sign of weakness rather than strength,” said Andrew Kenningham, senior global economist at Capital Economics, a London-based forecasting firm.
That view is gaining validity as easing moves last week in Europe and China as well as the recent measure from the Federal Reserve have had little effect in financial markets.
In the meantime, optimism already has turned against a supposed deal to recapitalize European banks, the latest in a long line of plans to staunch the euro zone debt crisis initially greeted with enthusiasm then quickly discarded as insufficient.
“Hopes that the EU was finally getting to grips with its crisis and that monetary stimulus would boost global demand have faded,” Kenningham said in a research note. “With euro break-up risk likely to rise in the second half of the year and monetary policy looking increasingly impotent, things could get much worse before they get better.”
Consensus is becoming more widespread that central banks are running out of bullets.
