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A deceleration in the growth rate of the UK economy is expected over the next couple of years as Brexit approaches.
A deceleration in the growth rate of the UK economy is expected over the next couple of years as Brexit approaches.

Global Economy Caught in Low-Growth Trap

The OECD and the IMF put growth in emerging economies at a below par level of 4%-4.2% again in 2016

Global Economy Caught in Low-Growth Trap

The OECD has observed that “eight years after the financial crisis, the global recovery remains disappointingly weak” with the world economy caught in a “low-growth trap”.
World growth was 3.1% in 2015, the weakest rate since the end of the economic crisis of 2008-2009, reflecting in particular slower growth in emerging economies, OECD report said. 
Global growth has slowed further in 2016, with the OECD estimating that the world economy will grow by just 2.9% this year. 
There was a marked slowing in growth in many of the main advanced economies in the first half of 2016, most notably the US. Growth there moderated due to weak business investment, a poor external trade performance and slower inventory accumulation. US growth has picked up in the second half of the year, as has activity in Japan. 
Europe has put in a solid growth performance since mid-year, despite the vote in the UK for Brexit. Nonetheless, growth in advanced economies is estimated by the OECD to have slowed to 1.7% this year, from 2.1% in 2015.

 Loss of Momentum
Growth in emerging economies lost considerable momentum in recent years, slowing from 7.5% in 2010 to 4% by 2015. Most notably, GDP growth in China slowed from 10.4% in 2010 to 6.9% in 2015.
Some countries, such as Brazil, Argentina, and Russia went into recession in the past two years, largely as a result of the collapse in commodity prices. 
The OECD and the IMF put growth in emerging economies at a below par level of 4%-4.2% again in 2016.
The outlook is improving, though, with both the OECD and IMF forecasting that growth in the world economy will pick up to 3.5% in the next couple of years. 
Growth in emerging economies is forecast to strengthen to around 4.5% in 2017-2018, helped by a moderate recovery in commodity prices and the emergence of countries such as Brazil and Russia from deep recessions.
Meanwhile, the OECD sees growth in advanced economies accelerating to 2% next year and 2.3% in 2018, helped by a more supportive stance to fiscal policy and continuing loose monetary policies. The OECD expects a marked acceleration in the pace of growth in the US economy in particular. 
It sees US GDP growth doubling from 1.5% in 2016 to 3% by 2018, assuming that the plans of US president-elect Donald Trump to cut taxes and boost infrastructure spending are implemented.
Some recent data is already pointing to a strengthening in activity. Notably, the Global Composite PMI rose to an 11-month high of 53.3 in October from 51.7 in September. The 1.6 point rise in the index in October was the biggest jump in almost three years. 
Other leading activity indicators have also picked up in recent months in a number of key economies.

 Downside Risks Remain
Downside risks, though, remain for the world economy. In particular, the still low level of commodity prices, sluggishness of world trade, high private sector debt levels, a need for sizeable fiscal tightening in some countries, and reliance on capital inflows are all downside risks to the growth prospects for emerging economies.
A deceleration in the growth rate of the UK economy is expected over the next couple of years as Brexit approaches, while growing political uncertainty could weigh on activity in the eurozone next year.
A close eye also needs to be kept on US interest rates, which have already started to rise in response to Trump’s overly pro-growth policies. The Fed is expected to hike US rates next week and follow up with further rate increases in 2017 and 2018. This could negatively impact global financial markets and highly indebted emerging economies.
In summary then, the recovery in the world economy lost momentum in the past couple of years, reflecting slower growth in both emerging and advanced economies. However, more recent data suggest that activity may be regaining some strength.

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