Is this time different?

The IMF’s latest World Economic Outlook, released on Tuesday, marked up world GDP growth for 2024 by 0.1% relative to their January forecast, largely on the basis of stronger US growth.  The US (2.7%) is expected to grow much faster than the EU (0.8%) and Japan (0.9%) in 2024, and to sustain a performance edge going forward.  China held steady at 4.6% and 4.1% for 2023 and 2024 respectively.

The last few IMF World Economic Outlooks have marked up growth forecasts.  But the broader trend is down.  World GDP growth is expected to average around 3.2% over the next several years, down ~0.3% from its average from 2011-2019.  Growth rates across advanced economies and emerging markets are both expected to soften.

This weakening growth profile is consistent with historical trends.  IMF analysis shows that the structural growth outlook has been weakening since the global financial crisis.  The IMF’s 5-year ahead world growth forecasts have consistently declined since 2008 – and are now sitting at their lowest levels in decades.

This weakening outlook is partly a function of weakening labour force growth, but largely to weakening productivity growth.  The IMF attribute this soft productivity performance to weaker allocative efficiency in the economy as well as to low levels of productive investment (despite the low interest rate environment).  The IMF expect lower levels of investment and total factor productivity growth over the coming period, leading to a weaker global growth outlook.

IMF Managing Director Kristalina Georgieva gave a talk last week, expressing concern that this decade could turn into the ‘tepid 20s’ rather than the hoped for (roaring) ‘transformational 20s’.  So how positive or negative on the economic outlook should we be?

Structural breaks

To think about the growth outlook over the next decade, it is useful to compare and contrast the current outlook with the post-global financial crisis experience.  Across advanced economies (and beyond), the global financial crisis had a large, enduring effect on economic activity. 

The full note is available here: https://davidskilling.substack.com/p/is-this-time-different