IN 2017 the global economy broke out of a rut. It grew by 3.8%, the fastest pace since 2011. Surging animal spirits accompanied a rebound in business investment across the rich world. Global trade growth rose to 4.9%, also the fastest rate since 2011. Emerging-market currencies appreciated against the dollar, keeping inflation low and debts affordable. Financial markets wobbled in February, but only after reaching all-time highs. In April the IMF said that the global economic upswing had become “broader and stronger”.

Since then that healthy glow has begun to fade. First, economic surveys in Europe took a turn for the worse (presaging growth in GDP of only 1.6%, annualised, in the first quarter). Then the rest of the world seemed to catch the same cold (see chart 1). In the first quarter America’s growth slowed to 2.3%, annualised, from close to 3% in the preceding six months. At the same time, Japan’s economy shrank by 0.6%, ending a growth spurt sustained since the start of 2016. Investors have begun to wonder if the period of global exuberance is over. Even policymakers in China, which has seemed relatively immune to the slowdown, have taken note of weakening domestic demand. In mid-April they loosened monetary policy slightly by allowing banks to hold fewer reserves. Meanwhile, the slow upward march of American bond yields—the result of expectations of higher inflation and interest rates—has turned the screw on emerging-market currencies, which have fallen by 5.4% since the start of April (see chart 2). A run on the peso has forced Argentina to ask for an IMF bail-out and raise interest rates to 40%. The Turkish lira has also taken a beating, in part because the president, Recep Tayyip Erdogan, says that low interest rates reduce inflation (see Buttonwood). On May 15th he promised to take more control of monetary policy after the upcoming election.

Make no mistake: world growth has slowed, but it remains strong. Surveys of activity in China, America and Europe are, when combined, higher than they have been 83% of the time over the past decade, according to UBS, a bank. Poor weather may have depressed European growth in early 2018. America’s economy often seems to slow early in the year, only to rebound, a phenomenon dubbed “residual seasonality”. Strong retail sales and high consumer confidence suggest that if a downturn is coming, Americans have missed the memo. In a way, however, that is part of the problem. Demand is piling up where it is least needed. American core inflation, which excludes volatile food and energy prices, is now 1.9%, according to the Federal Reserve’s preferred measure. That is only just below the central bank’s target. And the economy has yet to feel the full impact of the tax cuts and spending rises President Donald Trump recently signed into law. Outside America, however, inflation is falling short almost everywhere. In the euro zone it is only 1.2%, no higher than at the end of 2016. The Bank of Japan recently abandoned its pledge to raise inflation to 2% by fiscal year 2019—a target it had already postponed six times. Inflation in most emerging markets has been subdued, too. Even in Brexit Britain, where a big fall in the pound pushed inflation well above the 2% target in 2017, it has tumbled more quickly than expected. In theory, the world economy would be better off if this demand were spread around. Unfortunately, the mechanism that could achieve that is a dangerous one: a stronger dollar. In theory a rising greenback should allow Americans to buy more imports, stimulating foreign economies. In practice a rising dollar can play havoc with emerging markets that have dollar debts. And because so much trade is invoiced in dollars, a stronger American currency reduces trade between other countries, too. Four of the past five Fed tightening cycles have eventually triggered a crisis in emerging markets.

Yet there are reasons to be more confident this time. Among the ten largest emerging markets, only Turkey and Argentina ran current-account deficits greater than 2% of GDP in 2017. Most have dollar debts that are comfortable compared with the size of their economies.

Another threat talked up by bears is the oil price, which has risen to close to $80 a barrel. They think this will push inflation up further, forcing higher interest rates. But the Fed usually ignores temporary inflation driven by energy prices. And predicting the impact of oil prices on the world economy has become trickier than it was before the shale revolution. Pricier oil now tends to boost American investment. In any case, it is driven at least partly by demand, reflecting healthy growth.

The biggest risk to the world economy remains the possibility of a trade war. Mr Trump is negotiating with China and others with the aim of closing America’s trade deficit. That is difficult to square with a rising dollar sucking in imports. The danger is that slightly slower global growth, combined with ongoing stimulus in America, lays bare this problem and further provokes Mr Trump’s protectionism. That could set off a downturn that would really be worth worrying about.