April 2017

• The IMF global growth forecasts are on the move again, but for the first time in six years they’re on the up. They now anticipate global GDP will rise by 3.5% this year and 3.6% in 2018, the same as last October’s forecast. Albeit a rather tepid performance, policy-makers are taking solace from the fact that the cyclical recovery in all the major world economies is strengthening in unison. Barring a fat tail negative shock like protectionism, there are good reasons to remain confident that the global economy will continue to trundle along over the next year or so, supporting risk assets.

• Will the upswing translate into sustained, long-term growth? Unlikely. The impact of structural headwinds to growth like ageing, stagnant productivity, rising inequalities and over-indebtedness are well understood. Less so is the effect that the younger generations, in particular the millennials, will have on future growth. The trifecta of: (1) rising underemployment or unemployment, (2) rising student debt, and (3) rising property prices, makes them asset-poor and debt-rich, the worst possible combination for spurring investment and consumption.

• If recent productivity growth had mimicked its pre-crisis trend, high-income countries would today be enjoying 5% higher output and better living standards. The burning economic question is: can technology extract the world’s economy from the productivity hysteresis in which it is currently stuck? The hope is that yes: AI will conjure a productivity breakthrough. Perhaps, but to date it is more a source of anxiety than inspiration due to the feared effect of structural unemployment. More business investment and trade are the solution. According to a recent IMF paper, a 1% decrease in tariffs on inputs leads to a 2% increase in productivity, while a 1% increase in the share of migrants increases productivity by 3%.

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