The global economy is growing again, but there’s nothing normal about this recovery
Stephen Roach says the world economy has radically changed from eight years ago, with dynamism in the developing world today far eclipsing growth in the advanced economies. This raises several questions, not least the role of China
IMF believes resilient China to help power global economic growth in 2017
But this round trip hardly signals that the world is back to normal. On the contrary, the overhyped idea of a “new normal” for the world economy overlooks an extraordinary transformation in the global growth dynamic over the past nine years.
At the margin, the recent improvement has been concentrated in the advanced economies, where GDP growth is now expected to average 2 per cent over 2017-2018 – a meaningful pick-up from the unprecedentedly anaemic 1.1 per cent average growth of the preceding nine years. Relative strength in the United States (2.4 per cent) is expected to be offset by weakness in both Europe (1.7 per cent) and of course Japan (0.9 per cent). However, annual growth in the advanced economies is expected to remain considerably below the longer-term trend of 2.9 per cent recorded during the 1980-2007 period.
By contrast, the developing world keeps chugging along at a much faster pace. Although the average growth rate expected for these economies over 2017-2018, at 4.6 per cent, is about half a percentage point lower than during the preceding nine years, they would still be expanding at more than twice the pace of the developed world. Unsurprisingly (at least to those of us who never bought into the Chinese hard-landing scenario), strength in the developing world is expected to be concentrated in China (6.4 per cent) and India (7.5 per cent), with growth lagging in Latin America (1.5 per cent) and Russia (1.4 per cent).
The pendulum of world growth has swung dramatically from the advanced countries to the emerging economies
This persistent divergence between developed and developing economies has now reached a critical point. From 1980 to 2007, the advanced economies accounted for an average of 59 per cent of world GDP (measured in terms of purchasing power parity), whereas the combined share of developing and emerging economies was 41 per cent. That was then. According to the IMF’s latest forecast, those shares will completely reverse by 2018: 41 per cent for the advanced economies and 59 per cent for the developing world.
The pendulum of world economic growth has swung dramatically from the so-called advanced countries to the emerging and developing economies. New? Absolutely. Normal? Not even close. It is a stunning development, one that raises at least three fundamental questions about our understanding of macroeconomics: