William Blair Economist Olga Bitel examines the recent steady growth in world GDP – noting that a slowdown in global industrial production has coincided with a pronounced slowdown in China. Watch the video or read the recap below.
Global growth is decelerating broadly. How significant will the impact of secular stagnation on global growth be over the next decade? What are the main drivers of the slower economic growth?
Bitel: The world economy has grown by about 2.5% per year on average over the past four and a half years. The level of current (remarkably steady) growth is 1.5 percentage points lower than it was from 2004 to 2007, a period characterized by excessive leverage in most developed economies.
Taking a slightly longer perspective, the world economy has not had many years in which growth reached as high as 4%, and the current period of stability stands out amid volatility in the global economy over the past 35 years.
This picture of meaningfully slower growth is most evident in industrial production and global trade, so that is where we turn to for an explanation of the current conundrum and an indication of likely path of global growth over the next decade.
Meaningfully slower growth is most evident in industrial production and global trade, so that is where we turn to for an explanation of the current conundrum.
The slowdown in global industrial production coincides with a pronounced slowdown in China. Specifically, industrial production growth in China halved over the past four and a half years. We estimate that China’s industrial production accounts for nearly one-third of world industrial production, so China’s industrial slowdown has a major impact on the global economy.
To the extent that international trade is dominated by the goods sectors, the same pressures afflicting industrial production are evident here. In short, we believe the outlook for global growth hinges on stabilization of growth in industrial China. (See the chart below).