A real Goldilocks scenario, or a fairy tale?

Growth in US and UK will be lower this year, predicted the International Monetary Fund, although the global economy will grow by 3.5% this year and 3.6% next year. It revised its forecast for the euro area up from 1.7% to 1.9% due to stronger growth in Spain, Italy, France and Germany. China was also revised higher. A poll of economists by Reuters predicts that growth in major economies will be slower in 2019 than this year. Inflation will remain suppressed. Emerging economies will grow at 3.5% in the next 3 years. These figures prompted A Nageswaran to ask,"Is global economic recovery statistical or real?" After analysing all the data he found that recovery in China is because of export growth to the US, helped by the Federal Reserve's caution in raising the low cost of borrowing. "America's rolling 12-month trading deficit had widened to $780 billion in May this year, from a recent low of of $745 billion in September 2016." The eurozone has done better by earning a trade surplus but 60% of the population of France, Sweden and Italy has seen a decline in real incomes. Markets are euphoric everywhere. US markets closed at record levels yesterday, boosted by companies reporting earnings higher than expected. If major economies are growing more slowly, which should mean lower exports, as shown by the increase in trade deficit, and if wages are not growing as fast despite a low unemployment rate, probably because most of the increase in employment is in the low-wage gig economy, then what is driving demand? The Office of Budget Responsibility in Britain thinks that a recession is almost inevitable as debt levels are high, so any increase in government spending, to stimulate growth, will result in unsustainable increase in fiscal deficit. Meanwhile, defaults on credit cards, personal loans and overdraft are soaring, as households are unable to service unsecured borrowing. "The combination of higher-trend growth and below-trend inflation is what the folks at the Bank of America-Merrill Lynch fund manager survey call the Goldilocks scenario," wrote M Chakravarty. Which means that interest rates will continue to remain low. The same bank reported that "private client cash levels have dropped to a record low as a percentage of total assets", which means people are putting more money into riskier assets, such as stocks. So what about India? Our markets are also in record territory, in sync with the rest of the world. Our fiscal deficit, current account deficit and retail inflation rate are all down and GST is being touted as the ultimate steroid for the economy, wrote Sajjid Chinoy. On the other hand, exports are growing by only 3%, the agriculture sector is in distress and state finances are stressed because of loan waivers. So, is it going to be cheers, or tears? All fingers and toes crossed.