Pre-Covid, the pattern of global growth was relatively stable. Certainly, after the Covid-era gyrations, that is how it seems in retrospect. In the five years 2015-2019, global growth was around 4% p.a. China (with a rate around 6-6.5% p.a.) led the developing economies; the US (around 2-2.5% p.a.) led the advanced economies. In both, however, demographic and productivity trends argued for some steady slowing of growth in the future. If that is a reasonable view of the long-term picture, consensus forecasts for this year and next suggest we may be close to those equilibrium levels.
But there are reasons for doubt. In the US, coincident indicators still show strength in the economy but leading indicators suggest weakness. In particular, the inverted yield curve signals a recession may well materialise later this year. Across all advanced economies, core inflation remains sticky and the lagged effects of higher interest rates are yet to be fully seen.
The position of the US and China as leaders of their respective advanced and developing economy universes is also in question. Japan’s economic and corporate renaissance continues; Europe’s strengths (in technology and innovation) are most likely underappreciated; and the peripheral eurozone economies are a source of dynamism. US dominance can be questioned.
In the emerging economies, India has overtaken China as the world’s most populous economy. It has a younger demographic profile and is clearly providing an alternative to China as a manufacturing centre, building on its strength in business services. The Gulf economies have the financial resources for substantial green infrastructure development. Economies in Africa and Latin America are able to provide the raw materials for that transition and several are strong in their own right: Chile as a leader in clean energy, for example. This potential for a multi-decade transformation of the global economic landscape is huge.
Across the developed and emerging markets, however, the near-term attention is still on inflation and policy.
To discover more about our economic and market views, access the full Quarterly Market Review here.