Economic problems are no longer confined to Europe and North America as China and India see worrying slump in growth
It started in America. It moved on to Europe. Now the fear is that the big economies of the emerging world are about to join the west in a blanket slowdown.
This would be a new and worrying development. While the United States, Britain and Europe were having it worse than at any time since the 1930s, Brazil, Russia, India and China grew by 25% between 2008 and 2010.
There was talk of a changing of the guard, of a shift in economic power from west to east and from north to south. It was certainly the case that without the strong growth in the big emerging markets, the downturn that followed the financial crisis of 2008 would have been significantly worse.
The so-called Bric countries are growing, but since the start of 2012 there have been unmistakable signs that economic problems are not confined to Europe, North America and Japan. India has slowing growth and high inflation; Russia's industrial weakness has been masked by a high oil price; Brazil has felt the backwash from weak growth in the US; and China's export-led model has started to falter.
The only real surprise is why anybody should be surprised by these developments. Globalisation of production over the past quarter of a century has meant not just interconnectedness but interdependency. China's big export markets are Europe, which has been in the throes of a sovereign debt crisis for the past two and a half years, and the US, experiencing a sub-par recovery by historic standards.
Figures out last week showed that Chinese exports in July were just 1% up on a year earlier, with shipments to the EU and the US down by 8% between June and July. Import growth was also weak, suggesting that the domestic economy has also softened since the turn of the year. Electricity production, which economists use as a proxy for growth, has been flat during 2012.
Nor is China the only Asian exporter seeing reduced demand for its products. Singapore joined Hong Kong in registering falling growth rates in the second quarter of 2012, and Monday's Japanese GDP figures are likely to show a marked deceleration in activity between the first and second quarters of the year.
Beijing has started to respond to the slowdown in China. Official interest rates have been cut and the authorities are starting to make credit available for investment projects, albeit with a bit more caution than they showed during late 2008-09, when emergency action was taken to prevent the economy grinding to a halt.
China has oodles of capacity. Investment accounted for almost half of gross domestic product in 2011 (compared with less than 20% in the UK and the US), and much of the spending in recent years has been wasteful. In a more open economy, a combination of high domestic inflation and falling overseas demand would be leading to capital scrapping rather than investment in new plant and machinery.
But just as Europe has been kicking its sovereign debt can down the road, and the US has been delaying the moment when the budget deficit has to be tackled, so China is looking for a short-term fix in the hope that something will turn up.
That "something" is the pick-up in the global economy that will occur when the European Central Bank delivers on its promise to do whatever it takes to hold the single currency together, thereby providing the boost to confidence that will allow America finally to recover strongly and the Chinese to again become the workshop of the world.
From this perspective, the ECB's pledge to take on the bond markets was a game-changing moment. The next couple of months will see Greece put back on track with its austerity programme, falling bond yields in Spain and Italy, and evidence that the double-dip recession of 2012 was shallow and temporary.
A resolution to Europe's problems will enable Barack Obama to win a second term, allowing the US to shuffle away from the edge of the fiscal cliff, the big package of tax increases and spending cuts planned for 2013. Once the west is fully recovered, the good times will return to China and the other big Asian exporters.
This may be indeed what happens over the next six months. Equally, it could be the case that the ECB has merely bought Europe's policymakers a quiet August and that when they get back from the beach in September the old worries will resurface.
Greece will go bust when the Troika (the ECB, the EU and the International Monetary Fund) refuses to give it another bailout, the Germans will refuse to allow Mario Draghi at the ECB to fire his "big bazooka", and the economic news will get worse and worse. America's recovery will stall, leading to a victory for Mitt Romney in November. The new president will take early action to slash the deficit, pushing not just the US but also the global economy deep into recession.
A third scenario – and perhaps the most likely one – is that things remain messy. Policymakers find it impossible to repair the damage caused by the events of the past five years but instead try to adjust to the "new normal".
Mark Cliffe, the chief economist at ING, says "massive and unprecedented action" by governments has manipulated asset prices in an attempt to cushion the blow from the painful de-leveraging that would have otherwise taken place in the financial and public sectors. Zombie banks, real-estate bubbles in China, rising commodity bubbles, and rocketing budget deficits are the price that has been paid for avoiding a slump as severe as that of the 1930s.
The risk is that this is simply delaying the inevitable, which is what, from their different perspective, the Marxist and Austrian schools believe. The Marxists say this is the world of overproduction, suppressed wages and falling profit shares described in Das Capital; the Austrians say capitalism can be revived only if the rottenness is purged from the system.
Draghi, Ben Bernanke at the Federal Reserve, and Sir Mervyn King at the Bank of England, say the exceptional measures they are taking are justified because, given time, they will work.
So, this is a world in which the Bank of England has bought a third of UK gilts, a world in which the Federal Reserve has pumped trillions of dollars into the US economy for fear the money supply will collapse, a world in which the ECB props up European banks so they can buy government bonds nobody else will touch, and a world in which China can keep its growth model functioning only through manipulation of the exchange rate and unproductive investment. Apparently, this is the "new normal". There doesn't, to be frank, seem much normal about it.