Issue link: https://read.dmtmag.com/i/279349
I DA U N I V E R S A L M a rc h -A p r i l 2 0 1 4 45 he world economy will have a bumpy 2014. But the recovery is not, yet, at risk For much of 2013, the world's big stockmarkets had a magical quality about them. ey soared upwards—Amer- ica's S&P 500 index rose by 30% last year, and Japan's Nik- kei by 57%—buoyed by monetary stimulus and grow- ing optimism about global growth. Over the past month, the magic has abruptly worn off . More than $3 trillion has been wiped off global share prices since the start of Janu- ary. e S&P 500 is down by almost 5%, the Nikkei by 14% and the MSCI emerging-mar- ket index by almost 9%. at investors should lock in some profi ts a er such a remarkable surge is hardly surprising (see article). Ameri- can share prices, in particular, were beginning to look too high: the S&P fi nished 2013 at a multiple of 25 times 10-year earnings, well above the his- torical average of 16. A few bits of poor economic news of late are scarcely grounds for panic. It is hard to see a compelling economic reason why one unexpectedly weak report on American manufactur- ing, for instance, should push Japan's Nikkei down by more than 4% in a day. It is far easier to explain the market gyra- tions as a necessary correction. From supercali… to fragilistic Prices always jump around, but in the end, they are determined by the underly- ing economy. Here it would be a mistake to be too sanguine. Economists are notoriously bad at predicting sudden turn- ing-points in global growth. Even if it goes no further, the dip in asset prices has hurt this year's growth prospects, par- ticularly in emerging markets, where credit conditions are tighter and foreign capital less abundant. Tellingly, commod- ity prices are slipping, too. e price of iron ore fell by more than 8% in January. On balance, however, this newspaper's assessment of the evidence to date is that investors' gloom is overdone. A handful of disappointing numbers does not mean that America's underlying recovery is stalling. China's economy is slowing, but the odds of a sudden slump remain low. Although other emerging markets will indeed grow more slowly in 2014, they are not heading for a broad col- lapse. And the odds are rising that monetary policy in both Europe and Japan is about to be eased further. Global growth will still probably exceed last year's pace of 3% (on a purchasing-power par- ity basis). For now, this looks more like a wobble than a tumble. e outlook for America's economy is by far the most important reason for this view. Since the United States is driv- ing the global recovery, sus- tained weakness there would mean that prospects for the world economy were grim. But that does not seem likely. Janu- ary's spate of feeble statistics— from weak manufacturing orders to low car sales—can be explained, in part, by the weather. America has had an unusually bitter winter, with punishing snowfall and frigid temperatures. is has disrupted economic activity. It suggests that all the fi gures for January, including the all- important employment fi gures that were due to be released on February 7th a er e Econo- mist went to press, should be taken with a truckload of salt. All the more so because there is no reason to expect a sudden spending slump. e balance-sheets of Ameri- can households are strong. e stockmarket slide has The Worldwide Wobble Continued on page 47 T