Global economic growth slowed again last year as increases in tariffs and uncertainty about future tariff impositions and their implications for production activity continued to have negative effects on industrial production, especially in the advanced economies, and global trade.
- With a weaker global economic outlook and continued low inflation, several central banks loosened monetary policy last year and these actions should provide some tailwinds to support global growth this year and into next.
- Despite the stalling activity in global industrial production and trade, the pace of service sector activity has remained robust.
- Our forecasts for global GDP growth this year of 3 per cent, effectively the same as last year, and 3¼ per cent next year are unchanged on three months ago. We expect only a very gradual pick-up in activity as the year progresses, with headwinds to growth and fragility remaining a feature of the global economy.
After two years during which global economic growth has slowed from a cyclical peak in 2017 to its slowest rate since 2009, we expect that the growth slowdown will halt this year. We project global GDP growth of 3 per cent this year and 3¼ per cent next, with these forecasts unchanged from those of three months ago.
Some of the headwinds that have acted to reduce the pace of global economic growth – tariffs imposed by the US and the retaliations to these, the uncertainty created by the re-emergence of tariffs, falling industrial production in the advanced economies, recessions in Argentina and Turkey, and slowing growth in China and India – appear to be weakening. At the same time, monetary policy loosening in a number of major economies, facilitated by continued low inflation, should provide a new tailwind for global growth.
We continue to expect the improvement in global economic prospects to be gradual, not dramatic. With some early economic indicators showing positive movements in recent months, 2020 is expected to be a year in which more positive news on economic growth may gradually start to emerge. We continue to consider that it is more likely that next year will see an increase in the pace of growth than this year. Service sector activity has continued to grow relatively steadily.
On consumer price inflation, with the notable exceptions of Argentina and Turkey, the overall picture is one of relative stability and, in several economies, below target inflation despite a decade-long economic expansion. Although, particularly in the advanced economies, labour markets have tightened with generally faster wage increases, inflation has remained subdued. We expect the wider low inflation picture to hold.
In recent weeks news flows on bush fires in Australia, military tensions between the US and Iran, and the potential effects of the coronavirus have acted as reminders of the uncertainties in the global environment. At the same time, the signing of the Phase One agreement between the US and China on 15 January might lead to some of the uncertainties about a deeper trade war being reduced, although it is evident that there remains a considerable agenda for further discussion. Despite possible downside risks, we expect the decade-long expansion in global activity to continue.
“Below-target inflation has facilitated a loosening in monetary policy at a time of slowing growth. We expect that this loosening, especially in the US and Euro Area, will help to support GDP growth this year and next, and we expect global GDP growth to be about 3 per cent this year and slightly higher next year.” said Barry Naisbitt, Associate Research Director for Global Macroeconomics at NIESR. “Fiscal policy is likely to be the next source of policy impetus for growth if such an impetus is needed.”
Notes for editors:
The full forecast for the global economy will be published in the National Institute Economic Review no. 251 on Thursday 6 February. Details of NIESR’s previous global economic forecast can be found here.
For a full copy of the world economic forecast or to arrange interviews, please contact the NIESR Press Office: Luca Pieri or Phil Thornton on l.pieri@niesr.ac.uk / p.thornton@niesr.ac.uk / 020 7654 1954 / 07930 544 631
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