By Mike Dolan

LONDON (Reuters) – Global investors are once again dusting off studies of the 1930s as fears of protectionism, nationalism and a retreat of globalization, sharpened by this week’s Brexit referendum, escalate anew.

With markets on tenterhooks over Thursday’s “too close to call” vote on Britain’s future in the European Union, the damage an exit vote would deal business activity and world commerce is amplified by the precarious state of the global economy and its inability to absorb any left-field political shocks.

As such, the Brexit vote will not be an open-and-shut case regardless of the outcome. Broader worries about global trade, frail growth and dwindling investment returns have festered since the banking shock of 2007/08 and have mounted this year.

Stalling trade growth has already led the world economy to the brink of recession for the second time in a decade, with growth now hovering just above the 2.0-2.5 percent level most economists say is needed to keep per capita world output stable.

Three-month averages for growth of world trade volumes through March this year have turned negative compared with the prior three months, according to the Dutch government statistics body widely cited as the arbiter of global trade data.

And it’s not a seasonal blip. Last year saw the biggest drop in imports and exports since 2009 and their average annual growth of 3 percent over the intervening seven years was itself half that of the 25 years before, according to Swiss asset manager Pictet. 2016 is set to be the fifth sub-par year in row.

A study published by the Centre For Economic Policy Research shows this paltry pace of trade growth is also below the 4.2 percent average for the past 200 years.

Foreign direct investment growth of 2 percent of world output is also at its lowest since the 1990s, while the hangover from the credit crunch has seen annual growth rates in cross-border bank lending grind to a halt from some 10 pct in the decade to 2008.

Parsing the big investment themes of the next five years, Pictet this month highlighted “globalization at a crossroads” – offering both benign and malignant reasoning and implications.

One of these was that trade deceleration was due in part to the inwards reorientation of the world’s two mega economies, the United States and China — the former due to the shale energy boom and the latter’s planned shift to consumption from exports.

Another factor cited was a shift in the world economy towards services and digital activity that is not captured by statistics on merchandise trade.

But Pictet had little doubt about what brewing developments could swamp all that — rising nationalism on the far right and left of the political spectrum in Europe and the United States.

Britain “threatens to drive a fault line” through one of the world’s biggest free trade blocs, it said, and both presumptive candidates for November’s U.S. presidential election have talked of renegotiating the still-unratified Trans Pacific Partnership binding economies making up 40 percent of world trade.

“If the rising tide of nationalism results in greater protectionism, then the decline in international trade the world has experienced so far could well morph into something more pernicious,” the Swiss firm said, adding that multinationals — particularly banks and tech companies — were most vulnerable.

“1937-38 REDUX?”

Against that backdrop, this year’s market wobbles make total sense — especially as near-zero interest rates limit central banks’ ability to insulate against further shocks.

But echoes of the last major hiatus in trade globalization during and between the World Wars has economists looking again to the 1930s for lessons and policy prescriptions.

In a paper entitled “1937-38 redux?”, Morgan Stanley economists detail the mistakes that saw monetary and fiscal policy tightened too quickly once a recovery from the 1929 stock market crash and subsequent Depression started in 1936.

Over-eagerness to reset policy before private sector confidence in future growth and inflation had picked up saw a relapse into recession and deflation by 1938. The devastation of World War Two followed, and with it huge government spending on military capacity, war relief and eventually reconstruction.

Morgan Stanley goes on to draw a parallel with the global response to 2008’s crash and subsequent world recession.

Waves of monetary and fiscal easing by 2009 underpinned economic activity, but government budgets have again tightened quickly and before inflation expectations or private investment spending and capital expenditure have been restored.

The second world recession in a decade is now seen as a threat, but with a heavier starting debt burden, historically low inflation and interest rates, stalled trade and a worsening demographic profile. That could mean another global government spending stimulus is needed to re-energize private firms.

“The effective solution to prevent relapse into recession would be to reactivate policy stimulus,” Morgan Stanley said.

Success in preventing a new recession without the cataclysm of a world war would be a profound lesson learned. Political extremism, isolation and protectionism make the task far harder.

(Editing by Catherine Evans)