Posted on by John Sloman

Future for the global economy

There is a lot of pessimism around about the state of the global economy and the prospects for more sustained growth. Stock markets have been turbulent; oil and other commodity prices have fallen; inflation has been below central bank targets in most countries; and growth has declined in many countries, most worryingly in China.

The latest worry, expressed by finance ministers at the G20 conference in Shanghai, is that UK exit from the EU could have a negative impact on economic growth, not just for the UK, but for the global economy generally.

But is this pessimism justified? In an interesting article in the Independent, Hamish McRae argues that there are five signs that the world economy is not doomed yet! These are:

• There are more monetary and fiscal measures that can still be taken to boost aggregate demand.
• Despite some slowing of economic growth, there is no sign of a global recession in the offing.
• US and UK growth are relatively buoyant, with consumer demand ‘driving the economy forward’.
• Deflation worries are too great, especially when lower prices are caused by lower commodity prices. These lower costs should act to stimulate demand as consumers have more real purchasing power.
• Inflation may start to edge upwards over the coming months and this will help to increase confidence as it will be taken as a sign that demand is recovering.

So, according to McRae, there are five things we should look for to check on whether the global economy is recovering. He itemises these at the end of the article. But are these the only things we should look for?

Five signs that the world economy is not doomed yet Independent, Hamish McRae (27/2/15)

Questions

  1. What reasons are there to think that the world will grow more strongly in 2016 than in 2015?
  2. What reasons are there to think that the world will grow less strongly in 2016 than in 2015?
  3. Distinguish between leading and lagging indicators of economic growth.
  4. Do you agree with McRae’s choice of five indicators of whether the world economy is likely to grow more strongly?
  5. What indicators would you add to his list?
  6. Give some examples of ‘economic shocks’ that could upset predictions of economic growth rates. Explain their effect.