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The global economy is stuck in low gear and, as a result, global growth is expected to hover between 2.5 and 3.0 percent in 2016, according to new analysis released today at the World Economic Forum in Davos by IHS Inc., the leading global source of critical information and insight.
“The world economy is being dragged down by supply-side and demand-side constraints,” said Nariman Behravesh, IHS chief economist. “While it is easy to blame the 2008–2009 financial crisis for all the current economic woes, global growth has actually been on a downward trend since 2000.”
The deceleration in long-term trend growth has been caused by two supply-side limitations: the big slowdown in labor-force growth (in some cases into negative territory) and a sharp falloff in productivity growth. Since 2007, demand-side constraints have also been a problem.
“There is nothing inevitable about slow growth. However, it requires governments to enact sensible long-term policies rather than succumb to short-term political expediency,” Behravesh said at the World Economic Forum. “In particular, policies to encourage investment in all the new technologies that are being developed could significantly boost the growth in productivity and GDP.”
Implications for low gear world
The next year or two are likely to see a continuation of the trends witnessed since 2012, with developed economies doing a little better and most emerging markets continuing to struggle.
“Anemic growth in global trade has added to the woes of export-led economies and this state of affairs is unlikely to change much in the next two years,” Behravesh said. “The severe problems in China’s heavy manufacturing and mining sectors have had an especially damaging impact on commodity markets and the economies of commodity-exporting countries, including Australia and Canada."
The “rolling routs” in foreign exchange markets (beginning in 2013), commodity markets (beginning in 2014), and stock markets (beginning in 2015) have exacerbated the problems facing emerging markets.
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