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The Great Macro Divergence

Ten years ago, nearly all advanced economies fell off the cliff simultaneously. Nowadays, they are neither structurally nor cyclically aligned, and they are unevenly vulnerable to recession, which makes international policy coordination both more necessary and more difficult.

PARIS – “The global expansion has peaked,” the OECD warns in its latest economic outlook, and performance could be weaker if downside risks materialize. The party is not over yet: global growth is expected to continue in 2019 and 2020, though at a slower pace. But forecasters are notoriously bad at spotting macroeconomic turning points, and the road ahead is hard to read.

Potential obstacles abound: more aggressive monetary tightening, especially in the United States; a further escalation of protectionism; a harder-than-expected economic landing in China; and a return of tensions in the eurozone, triggered by concerns over the fate of Italian finances. All or any could intensify a slowdown that has started already.

A US recession would frustrate President Donald Trump as he seeks re-election in 2020, but it would not be at odds with established patterns. The expansion officially started in June 2009, and by July 2019 it will be the longest in US economic history. Unemployment is at its lowest level since the 1960s.

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