Slow Global Growth to See Only Moderate Rebound in 2014 Public and Private Investment, Combined with Productivity-Focused Policy Reforms Can Counter Long-Term Slowdown
NEW YORK, Nov. 12, 2013 /PRNewswire/ -- World economic growth, which stands at a disappointing 2.8 percent for 2013, will only slightly increase to 3.1 percent in 2014, The Conference Board reported today.
The Conference Board Global Economic Outlook provides output growth projections for 2014, 2014–2019, and 2020–2025, including 11 major regions and over 50 mature and emerging economies. According to the Outlook, annual global growth will remain at an average of 3.1 percent from 2014–2019, but could decline to an average of 2.4 percent in the period 2020–2025 on the basis of the current trend.
"Growth in 2013 has fallen below even our cautious projections," said Bart van Ark, Chief Economist of The Conference Board. "Among mature economies, Europe's worse-than-expected recession was compounded by self-inflicted damage in the U.S., culminating in the government shutdown. Meanwhile, growth in such emerging markets as India, Mexico, and Brazil saw even larger slowdowns than we anticipated. The good news for 2014 and beyond is that the upside growth opportunities present themselves somewhat more clearly and may offset downsides, provided business and governments invest more heavily in the future of their economies and reform agendas are accelerated to reap the benefits from such investments."
Policy and Politics Impeding Renewed Momentum?
Across the advanced economies, the Outlook predicts 1.7 percent growth in 2014, compared to 1.0 percent in 2013. Europe appears to be coming out of recession with even the most troubled economies having hit rock bottom. Growth in the Euro Area should improve to 0.8 percent from –0.3 percent in 2013; Europe as a whole is projected to grow 1.1 percent. Nevertheless, austerity programs will continue to weigh down the economies of Germany, France, and, especially, the U.K. Moreover, the continued lack of a true banking union will likely depress lending and investment even as demand picks up. Looking ahead, Euro Area growth should average 1.2 percent across 2014–2025.
U.S. growth is expected to rise from 1.6 percent in 2013 to 2.3 percent in 2014. As in Europe, government policy may be key to realizing (or outstripping) these gains. "The U.S. has great potential for private sector–driven growth, but political brinkmanship repeatedly impedes progress," said van Ark. "Some are more optimistic about 2014 U.S. growth, but we did not want to bake a reversion in policy course into our forecast. The big worry is that both sides of the political debate continue to resist serious discussion on long-term entitlement reform. By 'kicking the can down the road' on Medicare and Social Security, current fiscal pressure tends to fall solely on discretionary spending such as infrastructure, education, and research—the very investments needed to spur future growth."
In the medium-term, the outlook does expect advanced economies and the U.S. in particular to go some ways toward closing large "output gaps" resulting from losses in demand during the 2008–2009 recession. This development should allow the U.S. to average 2.4 percent annual growth during 2014–2019, but its long-term trend would be slowed at only 1.7 percent in 2020–2025. In the same two periods, Japan is expected to grow at 1.0 percent and 0.6 percent, respectively.
Slower—and Bumpier—Road Ahead for Emerging Markets
The ongoing shift of economic activity from mature to emerging markets will continue, but not at the rapidity seen over the last decade. Overall, growth in developing and emerging economies is projected to drop to 4.6 percent in 2014, compared to 4.7 percent in 2013 and 6.4 percent in 2010–2012. Most of this slowdown is driven by China's economy, for which further slowdown is anticipated in 2014 to 7 percent. Other large emerging markets will somewhat recover from weaker growth in 2013, rebounding to 4.4 percent in India; 4.6 percent in other developing Asia; 2.7 percent in Latin America; and 2.0 percent in Middle East & North Africa. Sub-Saharan Africa will continue to post fairly solid growth at 4.2 percent, while growth will slow to 2.5 percent in Russia, Central Asia, and Southeast Europe.
Looking further ahead, the medium trend in growth in China is projected to fall to an average of 5.9 percent in 2014–2019 and 3.5 percent in 2020–2025. The corresponding numbers in India are 4.8 percent and 3.6 percent; in Brazil, 2.9 percent and 2.8 percent. By the middle of the next decade, emerging markets will still substantially outpace advanced economies—growing at an average 3.2 percent versus 1.4 percent—but by a much smaller margin compared to the recent boom years. (Between 2010 and 2012, China, India, and Brazil averaged 9.2, 6.8, and 3.5 percent growth, respectively.)
"The slowing trend in the world's major emerging economies results from them entering a period requiring structural reforms in their growth models as they transition away from low-cost, export-driven production to consumer-driven societies with larger roles for domestic service industries," explained van Ark. "To avoid entering a 'middle-income trap'—that is, becoming too rich to compete on costs and too poor to compete on innovation—these countries need to recalibrate their policies in areas ranging from education and infrastructure investments to regulatory and tax regimes that support middle-class consumption. Such reforms take time and tact, and whether they succeed will be crucial to the long-term vitality of the global economy in the decades ahead."
Medium-term Upsides Come into Focus
While the medium-term estimates clearly point to a slowing trend in the global economy, the upside potential may outweigh the downside risks. The most powerful upsides would result from continued growth of middle-class consumers in emerging markets and, globally, a better use of technology and innovation that drives up productivity. These opportunities will only materialize if business and governments invest more heavily in the future of their economies, and policy frameworks are reshaped to help capital and jobs flow to those parts of the economy capable of faster productivity growth.
"There have been times before of slow growth, for example during the 1930s and again during the 1980s, that eventually created the breeding ground for great things to come," van Ark said. "The winners and the losers from a rebound in growth are sorting themselves out right now."
The Conference Board Global Economic Outlook 2014
About The Conference Board
The Conference Board is a global, independent business membership and research association working in the public interest. Our mission is unique: To provide the world's leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States.
SOURCE The Conference Board