The recession was avoided, but the global economy has weakened long after the short and intense post-Covid recovery. What to expect now for the future? Patrice Gautry, Chief Economist of Union Bancaire Privée attempts to give its own reading of the current global situation, pointing out that the recovery has been weakened by fragmented growth where large regional performance disparities have “desynchronized growth cycles” of the various countries.
From the USA to China: the map of recovery
On the one hand there are the United Stateswhich boast economic activity strongest among developed countries: the solidity of domestic demand and the labor market have counterbalanced the pressure exerted by inflation and the Fed’s restrictive policy. UBP therefore believes that growth will remain higher than that of other developed countries both in 2023 (USA + 2.2%; G7 +1.4%) and in 2024 (USA +1.6% G7 +1.1%).
At the other end of the scale the Chinawhich was unable to continue its post-Covid rally due to “cracks” in the real estate market and concerns about corporate failures. Analysts a slowdown in the third quarter (to +3.8% yoy), while the prospects for 2023 have been revised downwards (to +4.8%) and it seems unlikely that China will reach the 5% target set for the next few years .
For what concerns Europeeconomic activity is not much above the recession leveland unlike the United States, inflation is not easing. High inflation in Europe it has just peaked and it is not yet clear whether further monetary tightening should be expected. The disparity between countries of the eurozone have expanded, while the United Kingdom comes to terms with Brexit.
Nothing but missed bounce! A problem of strategic choices
An upheaval of the global cycle that has little in common with the classic unfinished post-crisis rebound, since the fragmentation has to do with the haste with which governments they fixed it to difficult phases such as the pandemic and the energy crisis and with l‘inappropriateness of some strategic choices.
For example, the industrial specialization of Germany (already in recession) and its dependence on cheap energy imports; there China’s dependence on its real estate sector, which has become a major risk; and the relations between developed and emerging countries – both commercial (trade in raw materials, electronic or pharmaceutical components) and geopolitical – which have come to present more risks than opportunities.
Furthermore, governments see their room for action limited by the costs of their stimuli and they have returned to seeing their deficits grow, with the result that it will take many years to reabsorb the enormous stock of accumulated debt, with implications on interest expenditure.
We need to start a new cycle thanks to investments
There first action necessary to restart the world economy – explains UBP – is the internal problem solving more urgent, such as the real estate crisis in China and energy supply disruptions in Europe.
Afterwards, the capital investments they will have to resume, to shape a more balanced cycle. A wise strategic move made recently by several countries has been to prioritize fiscal support for investments in new technologies, infrastructure and adaptation to climate change. This should increase global growth potential and productivity gains in the medium term,
Investments in new technologies and the spread of artificial intelligence across all industrial sectors could in fact cause a productivity shock of the same magnitude as what occurred when the Internet conquered the world. Ultimately, however, the fragmented economy should gradually resynchronize in 2024 and 2025, when growth drivers rebalance and focus on productive investment.