(The opinions expressed are those of the author, a columnist for Reuters)
By James Saft
Sept 11 (Reuters) - We may well not get a global recession in the coming year or two but if we do, bank on one thing: an inadequate policy response.
Citibank Chief Economist Willem Buiter attracted attention this week with a call for a 55 percent chance of a global recession sometime in the next two years, most likely starting in the latter half of 2016.
Buiter's working definition of global recession is important to note: unemployment above that which keeps inflation in balance, a gap between output and potential output, or actual real GDP below potential real GDP.
All of that equates, more or less, to global growth below 2 percent.
Global recessions are not that unusual: there have been four since the 1970s, with the usual run of traffic being a slowdown in the developed world spreading to emerging markets. More particularly, the U.S. tends to be the prime mover.
That's not what's likely in the immediate future. Instead Buiter is forecasting an emerging markets slowdown which hits developed market activity: via trade flows, via commodity prices, via financial market effects and via a hit to confidence.
As for China, it is the classic mix: excess capacity meets excess leverage. We've seen it so far in the property and stock market in China, but the harder to trace impact of local government debt and industrial production and investment are worrying too.
If we put aside for a moment the likelihood of a global recession, the interesting question becomes: will policy-makers react quickly enough and do they have the needed ammunition?
The answers, respectively, are no and no.
Chinese Premier Li Keqiang, speaking Thursday at the World Economic Forum in Dalian, seemed to rule out quantitative easing, highlighting its negative unintended effects and calling for structural reform instead.
Those may be the words of a man trying to inspire confidence in global markets, and at home, but the message may also bespeak a reluctance in China to get in front of the slowdown.
Remember that China's swift and, by and large, effective response to the great financial crisis was an easier political move to make. They were in essence cleaning up after mistakes made by others.
Aggressive policy steps in China now, or if the slowdown gets worse, imply self-criticism, a tougher ask.
PASS THE AMMUNITION
In China and across the emerging markets the policy response options in a widespread global downturn are not appetizing. As exports decline, interest rates will be cut, likely as parts of an attempt to achieve some advantage from currency devaluation.