Global growth has boomed

The Sunday Telegraph - Money & Business - - Labour Party -

GDP is set to rise 3.8pc in 2018, the strong­est pace since the post-re­ces­sion re­bound of 4.3pc in 2011. But the trend could be com­ing to an end, writes Tim Wal­lace.

An­a­lysts are slash­ing fore­casts. Credit rat­ings agency Fitch and the OECD have cut pre­dic­tions. The Bank for In­ter­na­tional Set­tle­ments, a global group of cen­tral banks, said ris­ing debts and over­stretched fi­nan­cial mar­kets could be warn­ing signs.

In­vest­ment man­agers are at their most pes­simistic since 2011, ac­cord­ing to a Bank of Amer­ica Mer­rill Lynch sur­vey.

A sig­nif­i­cantly weaker global econ­omy could have knock-on ef­fects for the UK, with se­ri­ous im­pli­ca­tions for Con­ser­va­tive and Labour poli­cies. The deficit would be higher, on lower tax re­ceipts and higher spend­ing.

Strong ex­port de­mand, which has boosted the econ­omy and eases the Brexit process by pre­sent­ing a friendly global mar­ket, could dis­ap­pear, flavour­ing fu­ture trade talks.

It is worth con­sid­er­ing how this could come to pass. The lat­est fear is that the driver of this ex­pan­sion, the US econ­omy, could stum­ble. In­ter­est-rate hikes are a clas­sic trig­ger to turn boom into bust. The Fed­eral Re­serve has pushed rates up eight times in three years. It has not stopped the econ­omy yet, with tax cuts fu­elling in­vest­ment, pay rises and con­fi­dence.

But with the trade war tak­ing hold, economists are wor­ried tighter money and slow­ing global trade could tip the US into re­ces­sion in 2020. The scale of such a down­turn is ex­pected to be lim­ited, how­ever.

Mem­o­ries of the fi­nan­cial cri­sis mean the word “re­ces­sion” is of­ten taken to mean an­other gi­ant crunch. This does not need to be the case. In eco­nomic terms a re­ces­sion takes place when GDP falls for two con­sec­u­tive quar­ters, so even a very mild dip, which is quickly over­turned with more growth, would count.

Cap­i­tal Eco­nom­ics pre­dicts US growth will al­most halve by 2020 – from 2.8pc this year to 2.2pc in 2019 and 1.5pc the year af­ter.

Paul Ash­worth, its chief US econ­o­mist, says: “With lim­ited signs of ma­jor im­bal­ances, as­set bub­bles or credit build-up, how­ever, we would ex­pect such a re­ces­sion to be mod­est.”

This in­di­cates it would be a more tra­di­tional short re­ces­sion caused by a stim­u­lus dis­si­pat­ing, rather than a crash built up by years of overex­u­ber­ance.

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