When the International Monetary Fund dialed down its forecast for world economic growth this year in January, Maurice Obstfeld, the Fund's new research director, emphasized that it was because of problems pretty much everywhere. Growth of 3.4 percent is still expected, up from an estimated 3.1 percent last year, but the risks "remain tilted to the downside," the IMF announcement said.
Those risks include a generalized slowdown in emerging market countries; China's uncertain effort to move its economy toward more consumption and away from investment in industry and infrastructure; the near-collapse of many commodity prices; and, finally, the Federal Reserve plans to raise interest rates in the United States.
In a very real sense, the interactions among these forces is globalization hard at work. Collectively, they pose a serious challenge for policymakers all over the world. Chinese leaders seem tom over whether to accept as unavoidable the pain of lost jobs and derelict factories associated with shifting the focus of their economy toward consumption, or to keep taking ad hoc actions that interfere with markets to ease that pain. As a consequence, there has been a huge capital outflow, and many observers are questioning whether Chinese growth has faltered much more than official statistics show.
Meanwhile, in many oil-producing countries--and U.S. states, for that matter--the plunge in oil prices has made hash of government budgets. For example, in war-tom Iraq, the loss of oil revenues may leave the government unable to pay employee salaries. The state of Oklahoma is facing a "revenue failure" that would require automatic across-the-board spending cuts by many agencies. Alaska is probably the hardest hit state by far. In Russia, government pensions and a wide range of spending programs may be cut. Mexico, Brazil, Ecuador, Columbia, and Venezuela are all hurting, with the latter a near basket case because of government mismanagement of economic policy.
And virtually everywhere, of course, investment in oil production facilities is collapsing along with prices.
Naturally, oil consumers are benefiting, for example, from the falling price of gasoline at filling station pumps. But for a variety of reasons, those savings have not so far been reflected fully in increased spending for other goods and services. In Europe, most of the cost of motor fuel is due to taxes, not oil costs, and in the United States, the offsetting cuts in oil patch...