Tuesday, January 17, 2017

WHY GLOBAL GROWTH IS FEEBLE

Why Global Growth Is Still Feeble, in Eight Charts

The World Bank's forecast is slightly higher, but it highlights reasons for caution


Greek riot police clash with demonstrators protesting the visit of U.S. President Barack Obama in Athens in November last year. The potential for a Greek exit from the eurozone is one of many policy questions fueling uncertainty, and subsequently suppressing investment, around the globe. ENLARGE
Greek riot police clash with demonstrators protesting the visit of U.S. President Barack Obama in Athens in November last year. The potential for a Greek exit from the eurozone is one of many policy questions fueling uncertainty, and subsequently suppressing investment, around the globe. Photo: Louisa Gouliamaki/AFP/Getty Images
The World Bank may be projecting a moderate pickup this year in global growth, but that doesn’t mean the economy is out of the woods.
Yes, the world’s biggest growth engine, the U.S., is picking up steam and a rebound in commodity prices is helping to stabilize many of the world’s commodity-exporting emerging-market economies.
But the outlook for the global economy is still dim. Beyond the long-running crises still vexing policy makers, here are eight charts that help explain why.
Stagnating trade is a key symptom of the ailing global economy.

Created with Highstock 2.1.5Sluggish TradeGrowth in global trade volumesTHE WALL STREET JOURNALSource: CPB Netherlands Bureau for Economic Policy Analysis via the World Bank Based on an average of global merchandise imports and exports. Last observation was September 2016
Created with Highstock 2.1.5Volumes1992-2008 Average2010201120122013201420152016-50510152025

Global uncertainty has topped crisis levels as the world’s largest economies undergo major political shifts, largely with a more protectionist bent.

Created with Highstock 2.1.5Political AnxietiesGlobal economic uncertainty indexTHE WALL STREET JOURNALSource: Stephen Davis and policyuncertainty.com via the World BankBased on the frequency of uncertainty expressed in domestic newspaper articles
Created with Highstock 2.1.52000’02’04’06’08’10’12’14’1650.0100.0150.0200.0250.0300.0350.0400.0

Many economists fear the U.S.-China tensions could devolve into a trade war. The future of the European Union is under threat as the U.K. negotiates an exit and anti-euro platforms gain momentum ahead of key continental elections. Chinese leadership is preparing a major leadership reshuffle. Elsewhere, Turkey’s attempted coup, conflicts in the Middle East and corruption scandals in several of the world’s largest emerging-market economies are injecting fresh worries into markets.
Growth in productivity—goods and services produced per hour of labor and a critical component for economic expansion—has languished in both advanced and developing economies.

Created with Highstock 2.1.5UnproductiveLabor productivity growth in advanced economiesTHE WALL STREET JOURNALSource: Conference Board via the World BankProductivity measured as real GDP (in constant USD) per hour worked
Created with Highstock 2.1.5%Long-term average (1992-2008) Long-term average (1992-2008) 2003-082010-15201600.51.01.52.0


Created with Highstock 2.1.5Below AverageLabor productivity growth in developing economiesTHE WALL STREET JOURNALSource: Conference Board via the World Bank Productivity measured as real GDP (in constant USD) per hour worked
Created with Highstock 2.1.5%Long-term average (1992-2008) Long-term average (1992-2008) 2003-082010-15201600.51.01.52.02.53.0

All of those factors have put a damper on investment. Capital expenditures—spending on new projects—are falling.

Created with Highstock 2.1.5Cooling CapexGlobal capital expenditures, in billionsTHE WALL STREET JOURNALSource: Thomson ONE and UNCTAD (2016) via the World BankBased on capex reported by the world's top 5,000 multinational corporations
Created with Highstock 2.1.52007’08’09’10’11’12’13’14’1505001,0001,5002,000$2,500

Corporate acquisitions, meanwhile, are on the rise, a strategy firms often resort to when they see limited options for growing through investment in new capacity.

Created with Highstock 2.1.5Buying SpreeGlobal corporate acquisition spending, in billionsTHE WALL STREET JOURNALSources: Thomson ONE and UNCTAD via the World BankBased on investment reporting of 5,000 of the largest multinational forms
Created with Highstock 2.1.52007’08’09’10’11’12’13’14’150200400600$800

And while many emerging markets have learned from the past, debt is on the rise, particularly in corporations. Low-income commodity exporters especially have seen their debt balloon.

Created with Highstock 2.1.5Debt-Rich PoorDebt in the world's poorest countries, as a percentage of their GDPTHE WALL STREET JOURNALSource: WorldBank and IMF*2016 is an estimate
Created with Highstock 2.1.5%2010-1420152016*010203040506070

Debt problems in China, the world’s second-largest economy, are still a threat to the world. The World Bank and the International Monetary Fund have warned Beijing needs to step up its efforts to rein in credit, particularly calling for a retreat from government-fueled growth. But when private investment shrank last year, the government used its leverage to prevent a marked deceleration.

Created with Highstock 2.1.5Government HandContributions to fixed-asset investment growth in ChinaTHE WALL STREET JOURNALSource: Haver Analytics and World Bank*State-owned and mixed ownership refers to state-owned enterprises or firms that are jointly owned by both public and privatesectors. 2016 data is up to November*State-owned and mixed ownership refers to state-owned enterprises or firms that are jointly owned by both public and private sectors. 2016 data is up to November
Created with Highstock 2.1.5State-owned and mixedownership*State-owned and mixed ownership*Private2005200620072008200920102011201220132014201520160510152025

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