World Economy

Global Growth Outlook Dips

Global Growth Outlook DipsGlobal Growth Outlook Dips

Confidence in the global economic situation and outlook has fallen to a three-year low, according to the latest survey of expert opinion by an influential German think tank.

The Munich-based Ifo Institute said that its World Economic Survey fell by 4.5 index points to 86.0 in the third quarter, dipping to its lowest level in over three years at ten index points below its long-term average, CNBC reported.

The latest results published on Thursday signaled a reversal in confidence seen from respondents in the last quarter, Ifo said.

"Experts' assessments of the current economic situation remain unfavorable, while their economic expectations are far more negative than the last quarter. Sentiment in the world economy is subdued," Ifo President Clemens Fuest said in the latest report.

The research center interviewed 1,086 economic experts in 115 countries for the latest July 2016 survey which asked respondents to rate the current world economic climate, situation and expectations for the global economy. The survey was started in 1981 and provides a global barometer of economic sentiment.

According to the report, the last quarter's upward trend ground to a halt in nearly all regions as concerns over the UK's vote to leave the European Union and economic slowdown in Asia weighed on sentiment.

"In Europe in particular the economic climate clouded over in the wake of the Brexit vote (on June 23). The only exceptions to this rule were the Eastern European EU countries, where the climate brightened. Meanwhile in Asia the climate indicator fell to its lowest level in seven years and in North America the index was only slightly higher than its long-term average," Ifo said.

Consumer confidence in the UK plummeted at the fastest pace in more than a quarter of a century following the Brexit vote. And its labor market went into “freefall” last month according to recruiters, which have reported the sharpest drop in permanent job placements since 2009.

There was, however, an improvement to the economic climate in Latin America and the CIS states (former Soviet countries), although the index rose from a very low previous level.

Instability, Populism and Authoritarianism

Over the next five years, mega-trends will not support an acceleration of global growth. Consumption, investment and productivity will remain sluggish and inflation low, EconoMonitor reported.

Macro fundamentals are weak: high debt and unemployment will constrain performance. Developed markets will stagnate and emerging markets will struggle.

Flat real incomes and rising inequality are major political risks. Instability, populism and authoritarianism will rise. Political tensions, financial instability, lower oil prices, deflation and competitive devaluations are major economic risks. Fiscal and monetary policy will not support demand and investment.

The over-reliance on central banks will continue, leading to further financial repression. Regulatory tightening will force traditional banks to choose between lower profitability and sanction risks.

Liquidity-driven markets will fuel asset inflation and remain jittery. Inevitably, the rising disconnect between fundamentals and valuations will bring about a bear market, if not a crash. Unusual times call for unusual portfolios: investors should lower their return expectations, and increase exposure to alternatives.

Aging populations will lift savings and reduce consumption and investment. Economic migration will soar, but immigration-without-integration will become the norm, boosting remittance flows.

On average and in rounded figures, over the next five years, India’s economy will grow at about 6.5% per annum, China at 5.5, MENA at 3.0, Brazil, Russia and Saudi at 2.0. The US economy will grow at about 2.5% per annum, Europe (and the UK) at 1.5, Japan at 0.5%.

Brexit will reduce growth: a) in the UK (shaving in average about -0.8% per annum); b) in the EU (-0.3% per annum); and c) at the global level (-0.1% per annum) and increase political uncertainty.