The Forward View – Global: October 2016

Global economic growth remains soft with a sub-trend pace of expansion set to continue and few signs of an upturn.

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Sluggish global growth set to continue

  • Global growth remains sluggish and sub-trend. Faster rates of output expansion would help overcome many of the problems besetting the world economy – debt overhangs, insufficient investment, tepid wage growth contributing to the undershooting of inflation targets, as well as a growing anti-globalisation populist backlash in big advanced economies.
  • Despite signs of stabilisation in areas of the world where economic activity has been weak, there is little evidence of new growth engines that could pull economic growth out of the doldrums. Consequently, we do not expect much improvement in global growth, which should remain below trend. The emerging markets are the key drivers of global output expansion and there is growing concern that the advanced economies could be locked into a cycle of slow growth.
  • Weak growth and below target inflation allows central banks to keep rates historically low and the focus in fiscal policy is shifting away from austerity to wind back big public debts and towards how public sector investment can be increased.
  • While global growth has been disappointingly sluggish it has at least proved resilient, continuing through numerous shocks – Brexit, 2015’s Chinese currency and share market volatility, and the early 2016 growth scare to name just three.

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