The world economy needs international trade to pick up, according to Reuters polls of hundreds of economists who see no end yet to the aggressive monetary stimulus through which central banks have tried to prop up inflation.
In recent months, central banks from India to Britain to Brazil have become more accommodative with policy, leaving the US Federal Reserve, which is widely expected to raise rates in December, looking like an outlier.
Financial markets are already showing a sense of unease, with sovereign bond yields up from record lows, many stock markets looking shaky, and investors warily eying the price of oil, which appears to have awoken from a long slumber.
Some economies, like India’s, appear to be in rude health: Australia’s quarter-century of uninterrupted growth is set to extend for another couple of years at least. Others, like Brazil, seem to have put the worst behind them. But these economies are not big enough on their own to make a meaningful impact on global growth, which has been stuck in middle-to-low gear for several years.
China, the world’s second-largest economy, has been an engine of global growth but is forecast to slow as Beijing’s attempts at rebalancing away from exports leave it vulnerable to sluggish world trade, plus an inflated property market.
“A pick-up in international trade volumes is needed for stable global economic growth,” noted Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities in Tokyo.
The US economy is not expected to grow much faster than two per cent throughout 2017, with a steady slowdown in hiring and a dearth of optimism, at least among economists, that business investment is set to finally rebound.
Across the Atlantic, Europe appears headed for another extended period of lacklustre performance and very low inflation, exacerbated by the uncertainty that now follows Britain’s vote on June 23 to leave the European Union.
Britain’s economic growth outlook remains significantly weaker than it was before the referendum, and a crash in the value of the pound is set to push inflation above the Bank of England’s target next year.
While 2017 is still forecast to be better than this year for global growth, economists and forecasters like the International Monetary Fund have cut predictions as the year has progressed.
Median forecasts from the poll of over 500 economists taken over the past week showed global growth at 2.9 per cent this year and 3.2 per cent next, barely changed from the July poll. The main difference this time is that economists have chopped their inflation outlooks for most countries, with lower highs and lower lows.
“Despite all that central banks have thrown at it, global growth is painfully slow and inflation still too weak. Our forecasts for the next two years suggest more of the same,” wrote Janet Henry, global chief economist at HSBC, in a note.
“As confidence in central banks’ ability to deliver further monetary stimulus wanes – and the effectiveness of their measures remains unclear – fiscal policy is playing a larger role.”
About three-quarters of more than 200 economists in the poll who answered an additional question said that reviving international trade was more important now for the world economy than boosting inflation.
This follows an extended period of slowing trade growth.
The World Trade Organisation cut its trade forecast for this year by more than a third last month, and growth in international commerce is now forecast to lag the world economy for the first time in 15 years.
The WTO anticipates 2017 trade will rise 1.8 per cent to 3.1 per cent, rather than the 3.6 per cent it had estimated in April.
The IMF noted in its latest economic outlook that the volume of world trade in goods and services is less than half the average rate of expansion during the previous three decades.
A trade agreement negotiated over more than half a decade between the EU and Canada and still not yet completed has also recently run into very shaky ground.
Aside from Britain’s vote to leave the world’s largest trading bloc, the political climate elsewhere in Europe and in the United States is much more hostile to further globalisation and expansion of free trade than it was just a few years ago.
“The most recent shock was Brexit and the most important potential global shock is a drift towards trade protectionism in the US, particularly if the presidential election favours Republican candidate Donald Trump,” noted Ethan Harris, global economist at BofA-ML.
The vast majority of economists covering the US economy who answered an extra question in the Reuters poll said Democrat Hillary Clinton, generally perceived as much more open to global trade agreements, would be better for the economy in the long run.