Growth in global GDP is expected to slow in both developed and emerging market economies this year and in 2020. The reasons for this include a decline in world trade, due in large part to the trade war between the US and China. In a recent report on the global economic outlook, Rabobank economists provided insight into these and other factors.
Growth of global GDP will decline somewhat in the coming years. The slowdown will affect both developed and emerging market economies. On balance, we expect to see growth of 3,6% and 3,5% this year and next year respectively.
The risks underlying this forecast have increased rather than declined. The trade war between the US and China in particular could lead to a worse-than expected decline in global GDP growth.
Apart from this, there has been a gradual decline in the growth of world trade since the beginning of 2018. Underlying this, the largest decline in contribution to world trade growth has been in the eurozone, due mainly to lower exports to the UK and emerging Asia. A further escalation of the trade war will significantly add to the factors negatively affecting the development of the volume of global trade.
The slower growth in most of the developed economies is due to the fact that they are at the end of their economic cycle. In other words, economic growth has reached the current capacity limits. In real economic terms, this is usually associated with a tight labour market and higher pressure on real wages and inflation.
But despite the fact that growth has led to sharp declines in unemployment in most developed countries, large wage increases have mostly failed to materialise. A recent study by the International Labour Organization shows that the global annual increase in real wages in 2017 was around 1,8%. In the G20 countries, the increase was only 0,4%. This has put downward pressure on the growth contribution from household consumption in these economies.
There is a serious challenge to meet here, as many of these countries have only limited alternatives for boosting their economies if the slowing of growth turns out to be more severe than expected.
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