World Economy
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Global Growth to Remain Stagnant

Donald Trump’s upset victory in the US presidential election further increases uncertainty over the fate of the global economy
Seismic upheavals in the global trade system and other downside risks could detract another 0.9% from projected growth over the next five years.Seismic upheavals in the global trade system and other downside risks could detract another 0.9% from projected growth over the next five years.

Economic pundits and crystal-ball gazers at the New York-based Conference Board, a global, independent business and research association, recently released their latest “Global Economic Outlook 2017” report, predicting that geopolitical tensions, policy uncertainty, financial market volatility and rapid technological changes will pin the world economy to a slow growth path.

Bart van Ark, the chief economist for the Conference Board, acknowledged that the report’s forecast, which was actually prepared in anticipation of an election victory by Democrat nominee Hillary Clinton—like the Conference Board, many organizations, think tanks, research groups and others had assumed a Clinton victory but, instead, woke up on Nov. 9 to find that Republican Donald Trump had won the election—would not “significantly change at least for now” after the US election, NewsNow reported.

The report projects global GDP growth of 2.8% in 2017, a modest increase of over 2.5% in 2016, contrasting sharply with rates of above 4% in the mid-2000s, and average 3.6% in the years 2010-15.

But van Ark qualified his remarks by saying that even this low baseline scenario faced considerable uncertainty in the next decade; seismic upheavals in the global trade system and other downside risks could detract another 0.9% from projected growth over the next five years. “It is now undeniable that the global economy is stagnant,” van Ark added.

Commenting on Donald Trump’s victory and its economic implications, Gad Levanon, the Conference Board’s chief economist for North America, said: “Donald Trump’s upset victory in the US presidential election further increases uncertainty over the fate of the global economy but—as of now—doesn’t alter our bottom-line growth picture.”

“Fiscal policy measures such as tax cuts and infrastructure investments may provide some growth upside for the US in the short term. But they’re likely to have only a minor impact on an economy that is beginning to reach full capacity and facing the prospect of impending interest rate increases, which may reduce the appetite to invest.”

 Foreseeable Future 

The report recommends that businesses that seek to buck the slow-growth trend must develop agile strategies to overcome uncertainty, shocks and disruption. The ongoing digital transformation of economies offers upside potential, but fulfilling it will require a renewed interest in business spending.

With energy and commodity prices stabilizing, resource-rich emerging economies, in particular, will see improved prospects in 2017. Global growth will improve slightly to an average of 3% in the years 2017-21—or slightly over 2% in mature economies and around 3.7% in emerging markets. 

 Possibility of Recession

However, annual global growth is projected to decline to 2.7% in 2022-26, as aging populations reduce labor supply in the mature economies and slow workforce growth in the major emerging economies. Van Ark said there was a “remote possibility” of a recession if business profits continued to decline and losses were incurred.

“For the foreseeable future, the majority of global growth will continue to come from quantitative sources such as labor force growth and investment in structures and machinery,” said Ataman Ozyildirim, the Director of Business Cycles and Growth Research.

The US GDP is projected to grow 2% in 2017, up from 1.6% in 2016. Eurozone GDP is projected to decline to 1.4% in 2017, down from 1.5% in 2016, while the GDP in the UK will grow just 0.8% in 2017, down from 1.7% in 2016, following the Brexit. Japan’s GDP is projected to grow 0.6% in 2017, down from 0.9% in 2016.

The picture among the giant emerging economies looks different. China’s GDP is projected to grow 3.8% in 2017, down slightly from 3.9% in 2016. 

The Conference Board uses its own Chinese growth estimates, which are different from the official Chinese figures. Based on these figures, medium-term growth is expected to fall even further from China’s boom years to 3.3% on average in 2017-21 and a long-term trend of 2.9% in 2022-26. 

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