WASHINGTON — Eight years after the financial crisis, the world is coming to grips with an unpleasant realization: serious weaknesses still plague the global economy, and emergency help may not be on the way.
Some of the recent tumult may be an overreaction by jittery investors. And the rock-bottom interest rates are partly a result of easy money policies by central banks doing their best to stimulate growth in the years since the crisis.
But that’s still far short of the 5.1 percent growth in 2007, before the crisis. The realization is dawning that growth may continue to underperform, and that recent turmoil may be more than just normal market volatility.
In Japan, the yield on 10-year bonds briefly turned negative, meaning bondholders were willing to pay the government for the privilege of being its creditor — for years. In the United States, long-term market rates are sliding again, even though the Federal Reserve has begun pushing them higher. Many government bonds issued by European countries trade at yields that are negative or close to zero.
That’s alarming because such low and even negative rates are way out the ordinary. For one thing, they suggest bond investors don’t expect enough economic growth for central banks to raise rates.
Along with that have come sharp drops in global stocks. The Standard and Poor’s 500 index is off 10.5 percent for the year; Japan’s Nikkei 225 is down 16 percent; the Shanghai composite index 22 percent; Germany’s DAX over 14 percent.
German automaker Daimler made a record operating profit of 13.8 billion euros last year, helped by a 41 percent surged in sales in China for its Mercedes-Benz luxury cars. But its shares fell when it announced a cautious outlook for only a slight profit increase for 2016 and “more moderate” growth in China. CEO Dieter Zetsche cautioned that he saw “more risks than opportunities” amid “restrained” global growth.
Money is flowing out of so-called emerging markets like Brazil, Russia, South Africa and Turkey. Investors pulled $735 billion out such countries in 2015 — the first year of net outflows since 1988, according to the Institute of International Finance.
Stephen Lewis, chief economist at ADM Investor Services International, argues the Fed should simply go ahead with raising rates to a more normal level.
In the U.S., low oil prices may mean companies involved in expensive oil and gas extraction will be unable to repay loans made to dig wells that are no longer profitable.
McHugh contributed from Frankfurt, Germany.