Global briefing: Global outlook/ China's surplus/ Europe/ Ukraine support/ Israel
In this week’s global briefing:
1. Global economic outlook: The IMF forecasts a slowing global economy, although with some resilience. But structural changes are becoming increasingly evident.
2. China’s trade surplus: A surging Chinese trade surplus reflects an updated investment and export-oriented growth model, which will attract pushback.
3. European economic security: Europe is already responding to these pressures, announcing anti-subsidy investigations and identifying sensitive technologies.
4. Ukraine support: There are some risks to support for Ukraine, most notably in the US. This will likely lead to increased disruption efforts from Russia.
5. Israel: The terrible attack on Israel is another example of the increasing incidence of economic and political tail risks in a more fluid global system.
1. Global economic outlook
The IMF’s World Economic Outlook was released at this week’s World Bank/IMF meetings, hosted by Morocco. World GDP growth for 2023 and 2024 was forecast at 3.0% and 2.9%, well below historical averages. Advanced economy growth is sluggish at 1.5% and 1.4% for 2023 and 2024. These are the weakest growth forecasts in decades.
But the likelihood of a soft landing is assessed to have increased over the past several months; there is weak growth, but also a measure of economic resilience and some of the downside scenarios are being avoided. For example, inflation continues to reduce (gradually) with little evidence of a wage/price spiral emerging.
Beyond the headlines, there were a few things that were worth noting. First, the geographic pattern of growth revisions relative to the forecasts in April. Across advanced economies, the US was a stand-out in being marked up by 0.5% and 0.4% for 2023 and 2024. In contrast, the Eurozone was marked down by 0.1% and 0.2%, with heavy downward revisions in Germany (which is now expected to contract in 2023). China was also marked down, by 0.2% and 0.3% respectively. There are quite different patterns of economic momentum across the global economy.
Second, China’s forecast growth is lower than that of the emerging and developing Asian economies (5.0% and 4.2% for 2023 and 2024 relative to 5.2% and 4.8%). This hasn’t happened on a sustained basis since the IMF growth forecasts started in 1980; China has consistently and materially generated stronger growth rates. India is growing much more strongly (6.3% for 2023 and 2024), and the ASEAN-5 are also forecast to out-grow China over the next several years. China is on a new growth trajectory.
Third, there is ongoing evidence of a weakening of the global income convergence process in which poorer countries grow more quickly than larger economies. The ongoing decline in forecast growth rates, underway over the past 15 years, is more pronounced in emerging markets than in advanced economies. This is even more marked when China and India are removed from the calculations: many lower income countries have been particularly badly impacted by the shocks of the past decade or so.
Fourth, consistent with my recent note, IMF analysis identifies volatility in commodity prices – reinforced by geopolitically-motivated economic fragmentation across global commodity markets – as a risk to the disinflationary process across the global economy.
Implications: More sluggish GDP growth across many parts of the world will have political implications. Slower growth often coincides with periods of political instability as public expectations are not met; and these pressures are currently compounded by high rates of inflation. Governments will need to be alert to manage the politics of slower growth.
The full note is available at: https://davidskilling.substack.com/p/global-briefing-global-outlook-chinas