The long road to recovery

FIVE years on from the start of the financial crisis, the global economy is enduring a feeble convalescence. The euro zone’s debt crisis became less acute in 2012, thanks largely to the promise by Mario Draghi, the European Central Bank’s president, to do “whatever it takes” to save the single currency. Bond yields in peripheral economies declined (chart 1). But Europe’s chronic problems worsened: its financial system continued to fragment (chart 2) and the euro-area economy shrank.

In such lifeless company America’s economy looked almost vibrant (chart 3). Its housing market turned a corner in 2012 (chart 4), and its unemployment rate fell steadily. But the recovery is still very weak. The numbers of long-term jobless stayed high; export markets drooped.

Many emerging markets had a dismal year as growth rates dropped (chart 5). Some of the slowdown is cyclical: China’s economy and underperforming stockmarket showed encouraging signs of strength at the end of the year, for instance (chart 6). But an era of souped-up growth in the BRICs—Brazil, Russia, India and China—appears to be over, which will do nothing to improve subdued commodity prices (chart 7).

Despite the gloom, investors enjoyed 2012 (chart 8). A calmer year in Europe helped; so too did another 12 months of ultra-low interest rates, which prompted money to pour towards assets, like corporate bonds (chart 9), that offered a yield. When recovery comes and rates rise, this will cause yet another set of problems.