Krugman, Summers Warn of Disruptive Threats to Global Growth
Paul Krugman and Lawrence Summers are casting gloom on the global economy.
(Bloomberg) -- Paul Krugman and Lawrence Summers are casting gloom on the global economy.
Krugman, the Nobel Prize-winning economist, warned of market complacency as Donald Trump and Xi Jinping ratchet up a tit-for-tat trade war between the world’s two largest economies. Former U.S. Treasury Secretary Summers said developed nations are ill-equipped for another recession.
"I’ve been amazed at the complacency of markets as Trump marches off to trade war," Krugman wrote on Twitter. "We don’t know that he’ll go all the way, and break up the global economy. But surely there’s a substantial chance. 50%? 30%?"
The cautionary tone follows a lackluster first half of the year for global assets. U.S. stocks climbed 2.8 percent and emerging-market equities slid 3.9 percent. A basket of global investment-grade bonds dipped 1.8 percent amid concern global growth could wane as the U.S. tightens monetary policy and European stimulus ends. Global stocks are trading around 15 times their estimated earnings, above the decade average, according to data compiled by Bloomberg.
Summers said the world’s most powerful monetary policymakers should be careful not to raise interest rates solely to curb inflation.
“Downturns happen,” he told Bloomberg TV on Tuesday. “When they happen, the normal playbook is to cut interest rates by 500 basis points, but there’s not going to be that kind of room."
To contact the reporter on this story: Ben Bartenstein in New York at bbartenstei3@bloomberg.net
To contact the editors responsible for this story: Rita Nazareth at rnazareth@bloomberg.net, Alec D.B. McCabe
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