Chinese canaries? A 25% slide in exports in one month does not presage a slide in the global economy, but when you are China, and the slide was the biggest since the GFC in 2009, and it was the eighth month in a row of falling exports, then you have to sit up and take notice. And that’s what happened in February. Some economists argued that the Lunar New Year distorted the data, falling around February 8 — but in 2015 the New Year was also in February, and that is not enough to explain a 25.4% slide in US dollar terms (20.6% in yuan). Trade fell with all of China’s major trading partners (and imports were down, mostly due to lower prices or volumes) in February — falls of 18% or more for Australia, the US, ASEAN and Europe. Iron ore imports — the most important indicator for Australia — fell to just over 76 million tonnes, from 82.2 million in January and the record 96.3 million tonnes last December (they were up from February 2015). Australia shipped more iron ore to China last month than in January. The China data ended the rally in markets and most commodities, but it also highlighted the continuing big question for the global economy — is it slowing, or like the Norwegian Blue of Monty Python fame, merely “resting”? The IMF reckons that’s the case, and the fund’s No. 2, David Lipton, warned the world economy faces a growing “risk of economic derailment” and needed immediate action to boost demand, repeating a call made three weeks ago ahead of the G20 finance ministers’ meeting in Turkey. Lipton told the National Association for Business Economics in Washington that among the “most disconcerting” signs of trouble were “a sharp retrenchment in global capital and trade flows” over the past year. — Glenn Dyer

But not everyone is convinced. The former chief economist of the IMF, Oliver Blanchard, thinks otherwise and says investors and financial markets have been too eager to believe the worst about the health of the global economy, thereby raising the danger of a self-fulfilling and unwarranted downturn. Blanchard, who stepped down from his IMF role late last year and is now at a policy institute in the US, said overnight that global economic pessimism in 2016 had been in contravention of basic economic facts. “The probability of another 2008 [financial crisis] is inconceivable,” Blanchard said. “The banks are clearly much stronger than they were.” — Glenn Dyer

And in Australia? Coincidentally, Reserve Bank deputy governor Phil Lowe popped up yesterday for his first speech of 2016 and added a different perspective to this debate. He pointed out that the debates about weak or falling prices are a little different from those in the past. In earlier decades, it was very rare for central banks to worry that inflation and inflation expectations were too low. “Yet today, we hear this concern quite often, and the ‘unconventional’ has almost become conventional.” Lowe pointed out that a big contributor to the low inflation outcome had been the sustained fall in oil prices.

“But a more fundamental influence has been the low wage increases in most advanced economies.

“The commonality of this experience of low wage outcomes, strong employment gains and relatively subdued output growth suggests that some global influence may be at work. One possibility is that workers in the advanced countries perceive that they have less bargaining power than they had before, either as an after-effect of the financial crisis and/or the incremental globalisation of many service industries. Another possibility is that it is a reflection of the subdued growth in the global production of goods and the relatively strong growth in services, where output is more difficult to measure.”

Lowe pointed out that in Australia the low wage rises and weak growth had produced low inflation and the continuing chance to cut interest rates should demand weaken further. This debate should be seen in the context of the move to negative interest rates by four central banks, especially the Bank of Japan and the European Central Bank, which is widely tipped to lower its key rate deeper into negative territory tomorrow night. As we reported yesterday there are growing worries that no one in the central banking community fully understands what negative interest rates could do, with the Bank of International Settlements this week publishing a research paper making these and other points. — Glenn Dyer

Peter Fray

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