It’s all very familiar. Oil prices are plunging. The US is the locomotive for global growth. The dollar is strong. Close your eyes and you could imagine the clock had been turned back almost 30 years to the mid-1980s, when the Reagan-Thatcher double act was in its pomp.
Nariman Behravesh, chief economist at IHS, says there is definitely a sense of back to the future as the annual meeting of the World Economic Forum convenes in Davos, Switzerland. Then as now, the world was recovering from a deep slump. Then as now, the cost of crude was coming down from a level that had caused severe problems for oil-importing nations.
Behravesh notes that the upshot of the collapse in the cost of crude in the mid-1980s was a powerful three-year boom and estimates that in 2015 the fall in oil prices from $115 (£76) to $50 a barrel will provide a $1.5tn boost to the global economy.
Even so, there is no real sense in Davos that another boom is in the offing. Six years after the recession of 2008-09, the mood remains uncertain.
A survey of chief executives from PricewaterhouseCoopers found that optimism has dipped a bit over the past year. The International Monetary Fund has just shaved its forecasts for global growth, noting that things would be even worse were it not for cheaper oil. There are worries about Ukraine, Greece and terrorism in all its guises, including cyberterrorism. Not even the most optimistic voices in Davos believe the world is on the cusp of a late 1980s-style boom.
There are a number of reasons for that. Firstly, the crisis of 2008-09 was different from that of the early 1980s. It was deeper, broader and struck right at the heart of the global financial system. In the mid-1980s, the banks were raring to lend money. Today they are a lot more cautious.
Secondly, the caution shown by the private banks has put a lot more pressure on central banks to keep economies ticking over. Global growth averaged 5% in the four years leading up to the crisis: the IMF is predicting 3.5% for this year and 3.7% for 2016. But this “new normal” has only been possible thanks to colossal amounts of stimulus.
Thirdly, the eurozone economy is in much worse shape than it was in the 1980s. A perennial subject at Davos is whether the eurozone can finally resolve its problems. Everybody at the forum expects Mario Draghi to announce that the European Central Bank is going to start buying sovereign bonds in a bid to prevent the eurozone becoming mired in deflation. Few expect the ECB president to fire a magic bullet.
Finally, there’s the distribution of the spoils. In the mid-1980s, despite the union curbs from Margaret Thatcher and Ronald Reagan, workers could still expect to see their real incomes rise. Year after year, wages rose faster than prices and living standards increased. That pattern was broken in the recession of 2008-09. Hence the anger of the unions gathered in Davos. Hence the focus on inequality. Hence the sense that even now, when memories of the last crash would normally be fading fast, the recovery job on the world economy is far from complete.
