Global Economy Slides Toward Zero Growth Amid Ongoing Challenges

Strategic Insights -

The backdrop to this weekend's G7 meeting in Alberta is one of deepening gloom, with Western economies slowing down even before the unpredictable policy announcements by U.S. President Donald Trump. The latest updates from the OECD and World Bank confirm that global GDP growth is expected to fall below 3% this year, a trend that has been decades in the making. The shift in the centre of dynamism from the Western economies to China and the developing world continues, with countries like India and Saudi Arabia being notable invitees to the summit.

Key Takeaways:

  • The growth rate of the world economy is decelerating, with both the OECD and World Bank expecting global GDP growth to fall below 3% this year, down from an average of over 3% in the late 1960s.
  • The slowdown is primarily driven by the developed economies, while the developing world remains more resilient in its recovery from the pandemic recession.
  • Countries like India, Indonesia, and China are expected to maintain growth rates above 5%, while growth in most Western economies will hover around 1% or lower.
  • The impact of population growth is such that real incomes are standing still or even declining in some places due to demographics and reduced productivity growth.
  • Prime Minister Mark Carney has placed a strong emphasis on harnessing artificial intelligence and quantum computing to boost productivity and growth, but the impact of AI on the economy is still unclear.
  • Historically, new technologies have had limited impact on overall productivity, and some experts, like Robert Gordon, believe that transformative technologies may never again find parallels.

Statistics:

  • Global GDP growth is expected to fall below 3% this year, down from an average of over 3% in the late 1960s (OECD and World Bank).
  • India's annual economic growth rate is expected to remain above 6% over the next three years, while Indonesia and China are expected to grow at around 5% (OECD and World Bank).
  • Most Western economies will grow at a rate of around 1% or lower, with some countries, including Japan and Italy, barely moving at all (OECD and World Bank).

Sources:

  • OECD (Organization for Economic Co-operation and Development)
  • World Bank
  • Robert Solow (Nobel economics laureate, 1987)
  • Robert Gordon (Professor at Northwestern University)
  • Baumol and Bowen (authors of the Baumol-Bowen cost disease thesis)