Part 1 – The Global Economy

The rate of change in global output remained relatively tame in 2016 as reflected in a slight moderation in growth relative to 2015 (see figure 1). Based on estimates by the IMF[2], global production grew by 3.1 per cent in 2016. This was down from 3.2 per cent in 2015 and was the slowest growth in global production observed in seven years. The slowing in growth in 2016 was due to weakness in the first half of the year, generated by uncertainty, slower growth in the large US economy, and volatility in the global financial markets.

In 2016, growth in the global output was 3.1 per cent, the slowest growth since 2009

Global economic growth was constrained in the first half of 2016 by the continuation of weaker growth in the US economy. The BREXIT Vote in June 2016 in which Britain opted to exit the European Union (EU) added to uncertainty, underpinning further volatility particularly in the global financial market.

The performance of the global economy improved in the second half of 2016. Most notably, growth in US real GDP picked up with quarterly GDP advancing by 3.5 per cent in the third quarter and an estimated 1.9 per cent in the final quarter of the year (after 0.8 per cent and 1.4 per cent in the first and second quarters respectively). This helped to support global growth to an estimated 3.1 per cent in 2016.

In Emerging Markets and Developing Economies (EMDE), data suggests that the downturn in output has bottomed out. Based on estimates by the IMF, growth in EMDEs remained robust at approximately 4.1 per cent in 2016. This was achieved as growth in the Chinese economy was higher than expected and declines in the Commonwealth of Independent States, particularly Russia, slowed. According to the IMF, the growth rate in China was a bit stronger than expected, supported by continued policy stimulus. The decline in Russian production decelerated from -3.7 per cent in 2015 to -0.6 per cent in 2016.

Estimates for global growth by the Organization for Economic Corporation and Development (OECD) were somewhat in line with that of the IMF, in that growth remained relatively lackluster. OECD estimated that growth in the global economy for 2016 was about 2.9 per cent, falling just below the 3.0 per cent expected earlier in the year.

The continuation of slow global growth has had a number of consequences, chief among which is the rise in global unemployment and more precarious type employment. In 2016, global unemployment rate was 5.7 per cent. The number of unemployed persons increased to just below 200 million persons.

Global growth prospects

Global growth momentum shifted to a brisker pace in mid- 2016 and this continued into 2017. As such, growth prospects for 2017 and beyond are now more positive. The IMF projects global growth to accelerate to 3.4 per cent in 2017, followed by a 3.6 per cent growth in 2018. Growth is expected to be led by emerging and some developing economies where growth is expected to rebound. There is also more optimism for growth in some developed economies, namely the US, Europe and Japan.

Other forecasts are in line with the expected acceleration in global growth over the next two years. Based on planned fiscal stimulus particularly in China and the US, the OECD projects a pick-up in global growth to 3.3 per cent in 2017 and 3.6 per cent in 2018. According to the OECD, the global economy may be at a point of inflection and as such, although some legacy of the recent recession remains, the global economy may be poised for an upturn in growth. The Bank of Canada forecasts global growth to accelerate from 2.9 per cent in 2016 3.2 per cent in 2017 and 3.6 per cent in 2018. Improved growth prospects are heavily predicated on the stronger performance of the US economy. However, much remains unknown. In fact, as growth prospects improved, the risks and uncertainties associated with economic growth have also increased. The risks include:

  • The actual transition of fiscal and monetary policies and policy mix in the US;
  • The extent to which policy support to growth continues in China;
  • Slow growth and deflationary pressures in some economies;
  • The implications of changing conditions and attitudes towards trade and immigration; 
  • The evolution of Britain’s exit from the European Union; and
  • The impacts of climate change on some low income economies.

Short to medium term global economic growth will be boosted by collective fiscal expansion and more open trade

The appropriate policies and policy mix will be critical to global growth in the near term. The recommended policy mix is one of synchronized fiscal expansion across economies while allowing for the continuation of a liberalized trade environment. Such policies are expected to generate positive private sector response (higher investments) that will help to stimulate growth to higher levels than those attained in recent years.

Labour market conditions are not expected to show significant changes. According to the International Labour Organization (ILO), “Global unemployment levels and rates are expected to remain high in the short term, as the global labour force continues to grow. In particular, the global unemployment rate is expected to rise modestly in 2017, to 5.8 per cent (from 5.7 per cent in 2016). Representing 3.4 million more unemployed people globally, bringing total unemployment to just over 201 million in 2017. And while the global unemployment rate is expected to hold relatively steady in 2018, the pace of labour force growth (i.e. those in search of employment) will outstrip job creation, resulting in an additional 2.7 million unemployed people globally”.

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