Global growth is now being stuck in a “mediocre” plateau, but no one seems to bother.
World growth risks getting trapped in the 2%-3% range it’s been in since 2010. The International Monetary Fund managing director Christine Lagarde has derided the level as “the new mediocre” compared with the 3.6% average in the five years leading to the 2008-09 global recession.
Here is the prevailing situation.
The US Federal Reserve looks set to refrain from raising interest rates again at its meeting today; China is obsessed with grabbing a greater share of world markets (its global export share climbed from 12.9% in 2014 to 14.6% in 2015) despite its proclaimed aim of diversifying; and Europe is struggling to help contain the Brexit impact.
“I don’t see a locomotive coming down the tracks,” said Prof Barry Eichengreen of the University of California at Berkeley in a Bloomberg report. “The US, China and Europe are all preoccupied by local problems.”
As the world’s largest economy, the US used to play the role of global growth engine in the past. But with growth averaging just 2.1% since the end of the recession, American policymakers have been reluctant to see the country take on too much of that role. “What I tell my colleagues around the world is, we can’t be the only engine in the world economy,” US Treasury Secretary Jacob J Lew said last week. “There needs to be multiple engines.”
China did act as global growth catalyst in the aftermath of the last recession, ramping up investment and corporate borrowing to spur the world’s second largest economy. But the Communist republic is now struggling to contain the fallout: Excess capacity and increased indebtedness. “China is still a developing country, we can’t shoulder the heaviest burden of the world’s economy,” Premier Li Keqiang warned in July.
As the largest economy in the Europe and the eurozone, Germany (with a surplus in goods and services of $310bn this year from $285bn in 2015) could lead the rest of the Europe. But uncertainty over the European Union’s future in the wake of Brexit is casting a pall over the region’s economy.
There is a growing argument among economists that a single-minded focus on GDP-based growth has misled markets and public policy. But growth figures still move markets, affect elections, shape monetary policy and sway business decisions.
In a world of low growth, low inflation and low interest rates, officials from the Fed, the Bank of Japan and the European Central Bank said in an end-August meeting their efforts to bolster the economy through monetary policy may falter unless elected leaders took bold measures. Such steps would range from immigration reform in Japan to structural changes by policymakers to boost productivity and growth in key economies.
Fed chair Janet Yellen said last month quality fiscal and structural reforms would help. And longer term, each society must become more entrepreneurial, based on social equality and inclusion as well as gender parity.