The World Economy Probably Will Be Stuck in a Mediocre Growth

Economy Jamie Simon
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The problem of the world economy is that no country has the will or capacity to serve its growth locomotive, writes Bloomberg.

“I see no train coming on the tracks,” says Barry Eichengreen, a professor at the University of California. “The US, China and Europe are all concerned with local issues.”

The likely outcome: the global economic growth will remain locked in the range of 2-3% as located in 2010. This performance was characterized by Christine Lagarde, the IMF managing director, as “the new so-so”, comparing it with the average 3,6% that dominated for five years before the global recession in 2008-2009.

Behind the modest performance: strategies in Japan and the euro area do not really have the ability to boost their economies, said Charles Collyns, chief economist at the Institute of International Finance.

Although the fiscal policy will play an increasingly more important role, it will only maintain growth in more or less constant mature economies, shows Collyns.

The world’s largest economy, the US, has frequently played the role of a locomotive of the world in the past. But given that the US economic growth has averaged only 2.1% since the end of the recession, US strategists do not much want the country to take over this role. “We cannot be the only engine of the world economy. There must be more engines, “said recently the US Treasury Secretary Jacob J. Lew.

China took over the role of engine of global growth since the last recession, accelerating and supporting the financing and investment companies in order to boost the economy. Now, as a result, the country is faced with excess capacity and a growing debt and is no longer willing to reassume such a role.

Premier Li Keqiang warned in July that although it will continue to act as a stabilizer of global growth, the country has its own pressures. China seizes a growing share of world trade. Its share of world exports has increased from 12.9% in 2014 to 14.6% in 2015.

Yet, Germany will be ahead this year, becoming the country with the highest current account surplus. It estimates a surplus of $310 billion this year, up from $285 billion last year, and above the level anticipated in the case of China, of $260 billion in 2016.

The country could become an engine for the rest of Europe if they implement further fiscal stimulus plans, says Aline Schuiling, economist at ABN Amro. This will probably not happen, though.

Uncertainty about the future of the EU after Britain’s decision to leave the bloc most likely also drawn down the region’s economy, according to Schuiling.