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World Economic Prospects
Publication year - 2016
Publication title -
economic outlook
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.1
H-Index - 8
eISSN - 1468-0319
pISSN - 0140-489X
DOI - 10.1111/1468-0319.12239
Subject(s) - emerging markets , economics , surprise , productivity , annual growth % , investment (military) , china , international economics , development economics , international trade , macroeconomics , agricultural economics , geography , political science , law , psychology , social psychology , archaeology , politics
Overview: World growth, ‘lower for longer?’Our world GDP growth forecasts are little changed this month, at 2.2% for 2016 and 2.6% for 2017 (the latter slightly down from August). Short‐term cyclical indicators are quite mixed. The improvement in high frequency signals such as the Citigroup economic surprise indices has petered out and some key survey indicators for August such as the global manufacturing PMI edged lower. But set against this, Japanese Q2 GDP surprised on the upside and we have upgraded Japan's 2016 growth this month to 0.5% from 0.4%. Several UK indicators have also come in much stronger than expected, defying widespread gloomy forecasts and supporting our above‐consensus call on UK growth (1.8% for this year and 1.1% for next). Indicators of international goods trade (including Chinese trade) have also shown some improvement, and there are some upgrades to emerging markets this month, notably to Brazil – now seen growing 1% next year versus 0.1% before. Less positively, this month sees a notable change in our medium‐term growth outlook for the US. Longterm potential growth in the US has been cut to 1.6% per year from 1.8%. This reflects a weaker outlook for investment and productivity growth and means US long‐term growth is likely to be considerably slower than in the 1990s and 2000s. With US long‐term growth more subdued and emerging markets also set to grow much more slowly in the next 10–15 years than before the global financial crisis (GFC), the prospects of world growth returning to the pre‐GFC pace looks increasingly remote. Our forecast sees world growth averaging 2.8% per year in the next decade, versus 3.4% in 1998–2007. If global growth is set to be ‘lower for longer’ this has important consequences for world interest rates also – both short‐term rates and long‐term rates. Crucially, ‘neutral’ central bank rates will be lower and the (eventual) degree of rate rises less steep. For instance, we now see the US Fed Funds rate topping out at just 2.75%, versus 3.25% before.