Why Are Global Policymakers Gloomy?

As officials gather for the I.M.F. and World Bank meetings in Washington, worries about trade and debt are on the rise.

“The present good times will not last for long,” said Maurice Obstfeld, chief economist of the International Monetary Fund, as he released the fund’s latest projections, which foresee a solid 3.9 percent expansion of the global economy in 2018, as noted in The New York Times.

There are trade war worries, financial imbalances, high debt, low-interest rates, and the imminent end of a 10-year bull run – quite a plateful for economists to worry about!

The worries span continents as noted here in The Guardian. Last year, after its forecasts had been proved wrong time and again, the OBR (Office of Budget Responsibility) in the UK lost patience. It decided there had been lasting damage caused by the financial crisis of 2008 and that the UK would never return to pre-crisis levels of productivity growth. Having been guilty of being too cheerful in the years up until 2017, it appears to have veered too far in the opposite direction!

But two points are worth making. The first is that the makeup of growth is changing because the depreciation of the pound makes imports and foreign travel dearer but also makes exports, and travel to Britain, cheaper. It is helping to rebalance the economy away from an excessive reliance on consumer spending, even though the boost to manufacturing and exports would be bigger had it not been for the decimation of industrial capacity over the past four decades.

The World Bank sees dark clouds on the horizon. As per the World Bank, the global economy will fizzle into a decade of sluggish growth in the 2020s as the current upswing fades and a slowdown in population kicks in, the World Bank has warned.

Its analysts expect the world economy to grow by 3.1% this year, following a strong 2017 as the shadow of the financial crisis is at last shaken off.

 

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But it will be the high point of a temporary cyclical recovery, as underlying structural problems make themselves known in the next decade.

Weak productivity growth across the world, poor levels of investment and the ageing of the global workforce will all dent GDP growth. And, that could well be the Achilles heel of the broader markets.

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