The global economy has moved away from the edge of the cliff. With short-term prospects clearly improving compared to the situation at the end of 2016. The world is looking stronger with indicators for most countries, suggesting firm growth during each of the coming two quarters. Activity in a few countries will remain volatile with rebounding growth expected in the first quarter and a moderation in the second.
The state of global economy and its future advancements
The situation for the three largest countries in Europe, i.e., Germany, France and Italy is anticipated to remain insubstantial with some negative growth in the 1st quarter and a moderate improvement in the second. Consumer confidence is strengthening in the US but remains low in the Euro area. Unemployment remains stubbornly high and climbing in Europe, but is falling in the US and bank lending is also moving in different directions with credit to firms recovering strongly in the US, in contrast to Europe where credit growth is starting to weaken once again.
Substantial risks remain in the Euro area. Confidence is low, yields remain high and lending activity as weak. In spite of positive action from the ECB, a lot needs to be done to boost growth and sustain the recovery beyond Europe. Other risks have emerged. Rising oil prices pose a threat to the recovery emerging markets, which have been the engine of the world economy for years are also showing signs of slowing activity.
World trade growth remains muted bearing witness to the moderation of activity in key emerging countries. The global outlook is still largely dependent on policy action in the US. The fiscal deadlock must be addressed in the Euro area. The firewall must be significantly strengthened, banks need to be recapitalized, underlying imbalances must be addressed to structural policies to boost growth. We have walked away from the cliff but more needs to be done.
Global vision of growth
The global economy is expected to grow by 3% annually over the next half-century. Growth will be much stable and faster in developing countries than in their developed counterparts of the OECD. The United States biggest economy today representing 23% of global economic activity. GDP will shrink to 18 percent by 2030 and just 17% in 2060. China which produces about 17% of global GDP, is expected to pass the US to become the world’s biggest economy.
Population aging, on the other hand, is expected to drag down growth in many countries. The Euro area is the world’s second-leading economy with 17% of global GDP as the number of active Europeans declines. Europe share of the world economy will drop to 12 percent by 2030 and just 9% by 2060. Japan which accounts for 7% of world GDP today faces the same challenges. Its aging population will push its share of global GDP down to 4% by 2030 and just 3% by 2060. Today the 34 country OECD represents 65% of global GDP.