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November 18, 2019 | Report
Overall, we have arrived in a world of stagnating growth. While no widespread global recession has occurred in the last decade, global growth has now dropped below its long-term trend of around 2.7 percent. The fact that global GDP growth has not declined even more in recent years is mainly due to solid consumer spending and strong labor markets in most large economies around the world. In this edition of the Global Economic Outlook, we’ve included regional sections for the US, Asia, and Europe that describe the underlying forces that will shape growth in the short and medium term.
The global economy took a bigger hit in 2019 than anticipated, slowing to 2.3 percent in 2019, down from 3.3 percent in 2017 and 3.0 percent in 2018. The slowdown is disconcerting because over the past two decades, a dip in global growth below 2 percent has often meant recessions in the form of GDP contractions across a broad range of regional economies.1 Recession fears are currently widespread but appear to be overblown. We expect global growth to remain slow but slightly improve next year, reaching 2.5 percent.
Overall, we have arrived in a world of stagnating growth. While no widespread global recession has occurred in the last decade, global growth has now dropped below its long-term trend of around 2.7 percent. The fact that global GDP growth has not declined even more in recent years is mainly due to solid consumer spending and strong labor markets in most large economies around the world. Of course, current conditions and future challenges differ in regions throughout the world. In this edition of the Global Economic Outlook, we’ve included regional sections for the US, Asia, and Europe that describe the underlying forces that will shape growth in the short and medium term. The overarching theme of this year’s outlook is stagnating growth and stalling globalization and what this means for business.
Recession fears are currently widespread but appear to be overblown.
A global recession will be avoided Despite the significant slowdown of the global economy and increasing concerns of recession, we forecast global growth improving slightly from a low of 2.3 percent in 2019 to 2.5 percent in 2020 and then settling at 2.7 percent by the middle of the next decade. Most of the boost in growth is thanks to the continued strength of consumer spending and tight labor markets as the recent rapid decline in industrial production eases and eventually bottoms out in 2019. At least for now, fears of an imminent recession appear overblown.
Global economic growth will be enough to sustain average income growth at more than 2 percent per year While the projected medium-term growth rate is well below the average of 3.4 percent of the past 50 years, it will remain strong enough to support average income growth of 2 percent. This means overall consumption growth will continue more or less unabated as more households reach middle-income status.
Slower growth over the next decade can still be healthy—provided productivity growth picks up the slack from a slower-growing workforce The good news for economic and business performance is that global growth is underpinned by a resurgence of productivity growth driven by technological change and innovation, despite slower population and employment growth.
In 2020, global growth will reach 2.5 percent. Economies in Asia, and especially India, continue to be the fastest-growing in the world. Asia will reach 3.6 percent growth, the US 2.2 percent, and Europe 1.4.
US GDP growth will continue its path of gradual slowing While annual growth in 2018 reached 3 percent, it is estimated to end 2019 at 2.5 percent then slow further to 2.2 percent in 2020. It will then fall to its underlying trend growth of 2 percent over the medium-term (2020-2024). Businesses will have to adjust to the new normal of 2 percent growth and focus even more on innovation to drive growth.
A US recession is not imminent in 2019, according to The Conference Board Leading Economic Index® (LEI) The index for the United States has not yet entered recession territory. Historically, the average lead of the LEI ahead of peaks is about 12 months. That suggests if a recession were to follow the current slowdown in 2019, we should look for it at some point after mid-2020.
Asia2 remains the fastest growing region in the world Growth in 2020 is forecasted at 3.6 percent, and average growth for the next decade is projected at 3.8 percent.
China’s economy has been hard hit by a credit downcycle but is expected to recover gradually as overcapacity is contained The credit cycle in China entered a downturn in 2017, resulting in a significant demand shock to industrial production in 2018. According to provisional, independent estimates by The Conference Board, China’s GDP growth dropped to 3.7 percent in 2018 and to 3.0 percent in 2019. Because current growth is less than potential growth, we anticipate a modest recovery in 2020.3
The European economy appears to have already adjusted to its lower growth trend In 2020, European GDP will grow at 1.4 percent, slightly down from 1.5 percent in 2019 and closer to its long-term potential. The risk of a larger Europe-wide contraction—while not absent—will be contained, given that the downturn in the industrial cycle is most likely to bottom out.
Brexit or not, recession risk has been rising in the UK The fact that Brexit may occur during a mature phase of the business cycle presents a double challenge in both the UK and the EU. However, the flexibility of the UK economy could help it or even offset the business and social costs of losses in output, jobs, and incomes during a UK recession.
1 According to the International Monetary Fund (IMF), a global recession is an extended period of economic weakness around the world. The IMF has identified four global recessions since World War II, beginning in 1975, 1982, 1991, and 2009. The Conference Board dates the beginning of these global downturns at July 1990, September 2000, and January 2008, and initial recoveries in August 1982, March 1991, October 2001, and March 2009. (For more information, see our Global Business Cycle Indicators).
2 The Asia aggregate region includes the following markets: Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan, Thailand, and Vietnam. In this report, we focus on the largest economies (China, India, Japan, and South Korea).
3 The GDP estimates for China for 2018 and 2019 are provisional. Our underlying methodology depends on China’s industrial production series, and data for 2018 and 2019 are still under review. In addition, the recently released 2017 IO table for China has not yet been processed with the latest estimates. Revisions to the China estimates will therefore be provided by March 2020.
