Global Projections Are Cloudy

The global economy has been decelerating for more than a year now, and of course, there is the widespread fear that the slowdown will turn into an out and out downturn.

This need not happen, but policy accidents do occur, especially when dealing with such an irrational President of the United States.

The global economy has decelerated sharply this year from 3.7% growth in 2018 to an estimated 2.9% growth this year. The Bank of Canada, which provided these global projections, expects the world economy to pick up very slowly over the next couple of years, reaching only a 3.3% growth rate in 2021.

Among the large economies, the American economy is projected to slow from 2.9% growth in 2018 to 1.9% in 2020 and 1.7% in 2021. Of course, the American economy is nearly fully employed, so much of the projected slowing in 2029 and 2020 is consistent with the economy expanding close to its capacity rate of growth.

The Euro Area economy has already clearly decelerated this year from its 1.9% pace last year and is expected to average close to 1% annual growth in 2019 and in 2020.

China’s large economy, 19% of the global economy based on purchasing parity measures, is projected to average close to 6% annual growth in the three years ending 2021. However, due to its outsized impact on world markets, the fact that China’s imports are slowing to such an extent is spreading the international economic malaise.

The related counterpart to the slower global growth is that business investment has become very weak virtually everywhere and manufacturing production and international trade has slowed very sharply this year. Base metal commodity prices and energy prices have also taken a major hit in this environment. There is little doubt that the US-China trade war has weakened commodity markets around the world.

In closing, the following international projections are somewhat consistent with a soft landing for the four larger economies, the US, the Euro Area, China, and Japan. Keep your fingers crossed, since a lot can go wrong.

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