ECONOMIC RISKS HINDERING GLOBAL GROWTH

Growth has been slowing for decades. Recent growth is also of poorer 'quality'. It is volatile, unevenly distributed and the drivers are unsustainable. But this has been ignored across the globe

- 

GROWTH was fine until it wasn't, at least according to financial markets. A few economic indicators underperformed expectations, and stock market and bond markets moved to the depressive end of manic. Pundits cooed about 'corrections' and then panicked.

In truth, growth has been slowing for decades. A global average GDP growth rate of anything around 3 percent is now considered acceptable. This compares to 5 percent between 1950 and early 1970s and 3-4 percent subsequently. Recent growth is also of poorer 'quality'. It is volatile, unevenly distributed and the drivers are unsustainable.

Since the 2008 global financial crisis, activity has been driven by loose monetary policy (low, zero and even negative interest rates) and fiscal largesse, made up of tax cuts and spending on programmes that range from the rational to the quixotic.

Lower interest and corporate tax rates explain probably half the real growth in corporate earnings over that period.

Global growth became unbalanced and excessively dependent on emerging markets like China and India, which have structural issues. Activity was based on cheap money-driven speculation into real estate and 'growth' stocks, such as the 'magnificent seven' focused around emergent technologies. This inflated financial asset prices and the paper wealth of higher income sections that own them, but inequality worsened. GDP per capita increases in many advanced economies are lacklustre.

There is an event-driven element, such as the rebound from the contraction of the pandemic or one-off spending on wars and disasters. True growth relies on four fundamental factors now in decline.

First, demographics-rising population and increased participation in the workforce drives activity. The world's population doubled twice in the 20th century. It will not do so once in this century. Population growth in advanced economies is slow.