TalkingEconomics: Global markets summary July 2015

Five years on from the world economy's initial rebound in 2010, it is clear that the growth environment is best described by a square-root sign. 


Keith Wade

Keith Wade

Chief Economist & Strategist

Flatlining global growth

The initial U-shaped upswing has given way to a world of flat 2.5% growth, well below the performance prior to the financial crisis.

The comparison with the pre-crisis world highlights the absence of a global locomotive and means that we are unlikely to break with the square-root recovery.

The recovery in growth from the Global Financial Crisis can best be described by a square-root sign.

Following the initial collapse and rebound, global growth has flat-lined at a steady, but sub-par, rate of 2.5%, which is half the rate achieved prior to the financial crisis.

This slowdown is largely accounted for by the emerging markets, where growth has slowed as a result of weaker demand from the West for emerging market exports.

However, we expect a continued recovery in Europe and Japan, as well as steady growth in the US, to push global growth up to 2.9% in 2016. This in turn should feed through into better exports for the emerging markets.

Looking for a global locomotive

In general though, we are doubtful that global growth will return to its pre-crisis pace, largely because the US is no longer the global locomotive that it once was.

With subdued credit growth, an ageing workforce, increasing inflationary pressure and looming interest rate rises, the economy is not in a position to reprise its role as the driver of global growth.

It is difficult to see who might take on this responsibility:

  • The eurozone is only just escaping deflation and, like Japan, is relying on currency depreciation to reflate activity.
  • China is in fact too small – we estimate that China represents less than 10% of global consumption compared to the US’s 25%.
  • Hopes that India may become the new driver of global demand look a tad optimistic as domestic consumption is little more than 2.5% of the global total.

The comparison with the pre-crisis world highlights the absence of a global locomotive and means that we are unlikely to break with the square-root recovery.

Important information: The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This article is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested. Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA, which is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored.