Uncertainty about the condition of the global economy has increased. Concerns relate, in particular, to China, where decelerating growth, weak export performance and market disruptions have been causing concern on the international financial markets. World trade growth would appear now to be past its peak.
The Bank of Finland forecasts global growth of 3.0%, 3.2% and 3.5% in 2015, 2016 and 2017, respectively. In many emerging economies, falling commodity prices, the appreciation of the US dollar and the acceleration of capital outflows have impaired the outlook. On the other hand, in the advanced economies, deleveraging (a drag on growth but also a necessity), fiscal tightening and unemployment growth are all easing.
The US economy is still on solid ground, driven mainly by private consumption, and is set to grow at a pace of about 3% per annum in 2016–2017. The euro area economy is also recovering, and the situation in the large euro area countries, in particular, is brighter. Private consumption has rebounded amid an improving employment outlook and a prolonged period of exceptionally low interest rates. Meanwhile, the oil price slide is helping to boost economic growth but will also subdue euro area inflation over the next twelve months.
Oil production has not responded to the falling crude oil price, thereby further accelerating the decline in prices. As the structure of Chinese growth changes, global demand for commodities is no longer growing as fast as before. Reforms in the Chinese economy have progressed broadly as expected, which is important for the emergence of new drivers of growth. The Bank of Finland foresees Chinese growth reaching some 7% in 2015, but slowing again to around 6% in 2016–2017.
There are downside risks to the forecast for the global economy. Changes in the Chinese economy may have wider implications for prospects in the advanced economies. The expected unwinding of US monetary policy accommodation is, in turn, being reflected in the emerging economies, where private sector debt is mainly denominated in US dollars. The situation in the Middle East and North Africa is not only causing huge human distress but also placing unexpected responsibilities on Europe for the reception and settlement of large numbers of refugees.
The 2008 financial crisis and the great recession that followed have already inflicted seven lean years on the global economy. The waning of investment has led to a slowdown in capital stock growth and employment. Despite fiscal and monetary stimulus, output has persistently remained below the level that can be reached without accelerating inflation. Consequently, over the long term, the boost to growth is to be provided above all by structural reforms.
For further information, please contact Samu Kurri, Head of Division, tel. +358 10 831 2288.
- Maailmantalouden epävarmuus kasvanut (in Finnish)
- Euro & talous publication website
- Slides (PDF)
The package of articles on monetary policy and the international economic forecast will be published in English on 2 October 2015 at www.bofbulletin.fi.