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Global growth is having its sunniest stretch since 2010, but how resilient is this strength?


The threats on the global growth horizon

In our last two articles, we’ve talked about the risks to global growth that the normalisation of monetary policy and geopolitical tensions could bring. For our final piece in this series, we’ll recap on these as well as looking into the other threats to growth that currently loom. 

Let’s recap

In our first article, we delved into the difficulty nations face in normalising monetary policy.

The conclusion we came to was that any changes in this space are difficult and fraught with downside risk, so the key to implementing any new policies will be to take a slow-and-steady approach. 

Communication will play a huge part in whether changes will have a positive outcome and also mitigate the contagion threat of uncertainty. No country is an island – so to speak. 

In the second article, we looked into trade tensions and where they may lead us. It’s fair to say that unless these tensions start to simmer down, it will be nowhere good.

It seems we can’t go a week without these escalating at the moment, so the IMF and the G20 need to continually reiterate the importance of free and fair trade that benefits all. 

We also looked into the current geopolitical tensions and how these are playing out across the globe. Whilst we don’t currently have a resolution to the US pulling out of the Iran nuclear deal, we do know that a conclusion needs to be reached before it unsettles the global climate further. 

We’re in a precarious state at the moment, with some nations looking like they want to revert to politics of old and become more nationalised. So, we’re not in the clear yet – the green shoots of growth will need careful nurturing to flourish. 

What else is on the horizon?

There are three other risks to growth that we wanted to discuss in this series. The three that we’ll be looking into are:

  • High levels of debt across the globe
  • Imbalances in growth between countries
  • Environmental issues, especially from the continued focus on fossil fuels 

Let’s start with high debt – which continues to be the story for a large number of countries across the world. We now see historically high levels of debt both from a public and private perspective in developed countries – with levels higher than seen before the global crash of 2008.

In emerging countries we’ve also seen some huge jumps in figures, with the debt-to-GDP ratio rising from 139% in 2010 to nearly 200% in 2017.

In a lot of economies, a large chunk of the debt has been focused towards real estate and financial assets with much less being channelled into productive capital. Productive capital is that which creates more intrinsic value, and the fact that a huge amount of corporate debt is not backed by value-creating assets poses a large risk for these economies. 

Policymakers now have a difficult balancing act to pull off – making sure that economies have the resilience to bear any external shocks whilst also maintaining a level of consumer and public spending that keeps global growth moving forward. 

Making growth more inclusive 

Whilst GDP growth has been revised upward in nearly 40% of countries, 25% of countries have seen their growth predictions revised downwards.

We’re still seeing a positive story in some least-developed countries (LDCs) with Bangladesh, Cambodia and Ethiopia predicted to see a 7% growth in 2018. 

But many Small Island Developing States (SIDS) and conflict-affected countries are lying below this level and aren’t able to grow enough to tackle the extreme poverty within their borders.

The improvement in global conditions means that policymakers should now have more scope to address some of the difficult, complex and deep-rooted structural barriers facing these countries. 

Some examples of this are supporting essential investment, creating a more transparent and stronger business environment and starting to tackle the high and/or rising levels of inequality within these countries. 

Protecting our planet 

The increasing global growth has brought with it environmental costs which are going to be very hard to negate. 

Global energy related carbon dioxide emissions increased by 1.4% in 2017. You don’t need to be a scientist to know that’s the opposite way that emissions need to go to protect our planet. 

Creating an environment where global growth doesn’t negatively impact our planet relies solely on the development, evolution and deployment of new technologies to create bigger and better renewable energy sources. 

To keep up the level of focus required to make this technology happen, countries have to continue to support these efforts and in turn, be supported for doing so.

Looking to the future 

The third meeting of the G20 finance ministers is taking place in July. Before this meeting, they have asked for a number of other parties to produce documents that will be on the table for discussion.

A large part of this discussion will be focused on digitisation and how the opportunities it brings can be harnessed to tackle global issues.

This isn’t just a ‘nice to have’ if we want to counter the large and complex issues that the world continues to face. Delivering a more efficient way of managing change will be of upmost importance moving forward. 

Our final thoughts

A group like the G20 will never be finished when it comes to what it’s having to tackle on a global level. In fact, any forward movement it makes only brings us up to a more stable level rather than pushing us past it.

But its incredible work since the 2008 recession is what’s got us to this current period of global growth. Nations need to remember and respect the group’s achievements in this regard when it comes to determining their own policies, especially those which will impact the rest of the world. 

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