The world economy is on the precipice, and don’t look to trade growth to cushion a fall
- The IMF’s latest assessment of the global outlook is sobering – a shock event will easily tip fragile economies into recession
- Global trade is sluggish from the impact of protectionism. An expansion in cross-border trade, a reliable growth driver in the past, is unlikely
On the surface, 2.9 per cent global growth doesn’t appear too shabby. But 40 years of perspective says otherwise. Since 1980, trend world GDP growth has averaged 3.5 per cent. For any economy, including the world as a whole, the key to assessing growth implications can be found in deviations from the trend – a proxy for the so-called output gap.
Last year’s shortfall from trend (0.6 percentage points) brought growth uncomfortably close to the widely accepted global recession threshold of approximately 2.5 per cent.
Unlike individual economies, which normally contract in an outright recession, that is rarely the case for the world as a whole. We know from the IMF’s extensive coverage of the world economy, which consists of a broad cross-section of some 194 countries, that in a global recession about half of the world’s economies are typically contracting, while the other half are still expanding – albeit at a subdued pace.
The global recession of a decade ago was a notable exception: by early 2009, fully three-quarters of the world’s economies were actually shrinking. That tipped the scales to a rare outright contraction in world GDP, the first such downturn in the overall global economy since the 1930s.