It is hard to recall a time of such conflicting signals from the world economy. Oil and commodity prices are plummeting, promising £1 a litre at the pumps, but forcing crippling retrenchment on resource producing companies and nations.
This might suggest deeply impaired demand, and a world economy that is heading back into recession. In the United States, on the other hand, the Federal Reserve is preparing for its first rise in interest rates since the onset of the financial crisis. Over in America at least, policymakers fear an economy that needs reining in.
Meanwhile in Europe, policy is heading in the other direction, with the European Central Bank cutting its deposit rate to minus 0.3 per cent and promising further to extend its programme of “quantitative easing”.
What’s going on here? Divergence such as this usually presages rough financial seas ahead – there will be busts, possibly of entire countries, as the world adapts to higher US interest rates – but perhaps surprisingly, the overriding message is broadly positive.
This is not to underestimate the risks of another recession, but merely to state what is not immediately obvious. Disentangling the signals, we find a world economy which is in all likelihood pulling further away from the abyss rather than heading back into it, at least for now.
First the oil price. Contrary to what you might expect if the economy were about to take another bath, demand for oil is in fact rising, not falling. Bank of America estimates that global demand has increased by around 1.8 million barrels a day over the past year, the second highest rate of increase in 10 years.
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