Global economy enjoys strong growth, but headwinds remain
While the global economy has entered a period of improved growth, with periphery countries in the EU likely to see strong growth over the coming years, the global stock market slide at the beginning of February suggests that the economy is not invulnerable. As well as the turbulence of the market, longer-term growth could be hit by ageing populations and low-productivity, according to a new report.
The global economy performed relatively robustly through 2017, boosted by stronger growth in Europe and the APAC region. In PwC’s latest analysis of global growth trends, the firm considers various themes that are likely to impact growth this year and into the near future.
Growth of the global economy is projected to hit 3.2% in 2018 in real market return rates. Growth in the latest forecast by the firm has been revised upwards, with continued real growth of 3% in 2019 and 2.9% between 2020 and 2024.
In purchase power parity terms, global growth has hit the highest level since 2011, at 4%. PPP growth from the US, Eurozone and emerging Asia may hit 70% of total growth for 2018, an increase on the long-term average of 60% post 2000. The growth reflects increased synchronisation between major economies – even in light of the prevalent rhetoric.
Key growth economies, including the US and China, are set to see mixed bag results going forward. In China, for instance, the shift from high speed to high-quality-growth is set to continue, with real growth falling to 5.9% between 2021-24, although risks remain – particularly to dependent economies such as South Korea and Australia. In the US, while the new Tax bill has been adopted, growth rates are unlikely to be boosted to the required level to pay for the legislation, and PwC predicts that it will therefore see growth of no more than 2% between 2021 and 2024.
The Eurozone is expected to see mixed growth, with core countries – whole GDP relative to size tends to be higher – set to grow relatively more slowly than the periphery. However, growth in the region will be relatively robust, with the Netherlands growing by 2.6% this year (from 3.2% last year), while Germany will clock a strong 2.3%.
Peripheral countries have now clocked five years of performance above that of the core, with Ireland, the star performer according to the latest figures, at 3.5%, followed by Greece on 2.8%. Spain and Portugal, after a protracted period of slow growth, will clock 2.6% and 2.1% respectively. While uncertainty in one quarter has declined, with Greece set to leave the bailout programme in the third quarter, the UK and Brexit continue to weigh heavily, with real growth falling to 1.4%. This is even lower than the staggered growth of 1.7% that the UK saw in 2017, which the government’s Office for Budget Responsibility warned would lead to a “bloodbath” in public finances.
GDP growth
GDP growth is set to remain relatively steady into this year, yet population growth, one of the main drivers for growth over the past half century is slowing, with the firm’s latest figures showing global population growth at its slowest since 1950. The slowdown is largely the result of a greying population in developed countries, with Eurasia set for 0.1% growth, while China and the Middle East and South East Asia will clock around 0.9% growth. Africa remains the fastest region for population growth, at 2.5%.
The unemployment rate has decreased sharply on the most recent peak following the financial crisis – falling as low as 1.4 million in the UK – though a large chunk of this can be attributed to poorly paid freelance work. Across the G7, the rate comes close to full employment, although this is also expected to put pressure on wage rates, which, have been slow to move relative to the drop in unemployment – particularly in the UK where wages continue to lag behind the peak in 2007; while in the US the bottom two thirds of employees effectively haven’t had a raise since the 1980s.
