With markets experiencing a rout that seems out of all proportion to the economic data — do we really expect a global recession on the back of a 3 per cent devaluation of the Chinese currency? — investors are hoping that policymakers will step in and restore some calm.
Unfortunately, it is hard to see how, exactly. In most developed economies, fiscal policy remains relatively tight (the eurozone and even the US) or indeed needs to get tighter (Japan), while interest rates are still at rock bottom levels. That leaves little scope for providing much global stimulus.
Worse, expectations of rising US rates are preventing many emerging markets from adopting desperately needed counter-cyclical monetary policy.
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