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Thoughts on the global economyApril 2017
Deloitte Economics & Markets Team Ian Stewart, Chief Economist, Deloitte LLP, London
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Leading indicators signal stronger growth ahead
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Global growth nudges up in 2017, but not back to pre-crisis rates
Real GDP growth (% YoY)*
Pre-Crisis
Post-Crisis 2016 2017 2018
World 4.2 3.3 3.1 3.5 3.6
Advanced 2.8 1.0 1.7 2.0 2.0
Emerging 5.9 5.2 4.1 4.5 4.8
*Pre-crisis = 1998-2007, Post-crisis = 2008-15, Forecasts for 2017, 2018
Source: IMF World Economic Outlook, April 2017
Deloitte Economics & Markets Team
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Why has growth been so weak: when bubbles burst growth suffers
“Over the last 120 years crises have been followed by a downturn lasting on average 2 to 3 years and costing 5 to 10% of GDP” Eichengreen and Bordo, December 2000
Crisis Dates Duration Change in GDP Change in bank lending
US Great depression 1929-1933 4 -30 -50
Japan’s lost decade 1996-2005 10 -3.3 -30
Finland’s banking crisis 1990-1996 7 -12 -11
Source: Deloitte Research
Deloitte Economics & Markets Team
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Growth forecasts: 6-10 years ahead
Growth potential of Western economies falling
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UK: millennials’ incomes no better than Gen X’s
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Financial crisis has squeezed those in work
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Shocking increase in mortality among middle age Americans
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Free trade needs re-booting
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Declining workforce participation = slower growth
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vs
Is innovation is no longer moving the dial on growth?
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Creative destruction drives prosperity
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Innovation drives down prices
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More computer power for your money
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Technology replaces human muscle power = fewer jobs, higher productivity
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Less spent on essentials, more spending elsewhere
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Productivity raises living standards = more spending on “luxuries”
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Jobs in knowledge-intensive sectors rise
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Human desires unpredictable
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Conventional measures of GDP struggle to capture these benefits
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Is the world really getting worse?
Deloitte Economics & Markets TeamDeloitte Economics & Markets Team
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World population living in extreme povertyDefined as consumption/income < $1.90 per day adjusted for inflation
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Long squeeze on labour’s share of GDP coming to an end?
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GDP per head
Hours worked per year
Working long hours doesn’t make you productive or rich
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• Global growth accelerating
• Upturn in emerging and developed markets
• Trend growth rates can be raised
• Increase workforce participation
• Re-boot global trade
• Invest and innovate
• Improve regulation, open markets, sharpen incentives
• Measure better
Conclusions
Deloitte Economics & Markets Team