Global stagnation

Global stagnation is generally considered in late 2011 to be a possible short-term prospect, involving a large part of the world economy. Of 30 countries surveyed by the International Monetary Fund, the growth rates of the economies of 20 were classified as "below trend and moderating"; of 8 as "below trend and rising"; and of 2 as "above trend".

The general slowdown of economic growth that occurred in 2011, following the strong growth of 2010, is thought to be attributable to a range of factors, including:
   (a) the completion of the stockbuilding phase of the inventory cycle that normally follows a recession;
   (b) the economic shock caused by the Japanese tsunami of March 2011;
   (c) the loss of output due to the continuing deleveraging by banks and the consequent restriction of credit to companies;
   (d) the effect on demand of continuing deleveraging by companies and households;
   (e) the effect on demand of the reductions in public expenditure and the other fiscal adjustments in the fiscal aftermath of the Great Recession;
   (f) the eurozone crisis and the fear of a European banking crisis resulting from the expected restructuring of the Greek government's debt;
   (g) the fear of a global financial crisis resulting from contagion from the Greek crisis leading to a sovereign default by one of the larger PIIGS countries.
Assessments of the relative importance of (a) to (g) differ, but it is evident that factors (a) and (b) were transient effects with no implications for current prospects. Factors (c) and (d), on the other hand, may be expected to exert a continuing but diminishing influence. The prospect of stagnation (or a second downturn) is thought to depend mainly on factors (e), (f), and (g). In a "worst case scenario", a general reduction in investor and consumer confidence could exert positive feedback and initiate a cyclical reduction in economic activity and international trade, affecting both mature and developing economies.