Persistently sluggish global growth raises concern about economic stagnation – NAB

Research Team at NAB, suggests that despite stimulus from historically low interest rates, central bank asset buying and the fading headwinds from fiscal austerity, growth remains disappointing in the big advanced economies.

Key Quotes

“Annualised growth in the G7 advanced economies fell to only 1% in the June quarter, down from March quarter’s 1.6%. By mid-2016 the volume of output in the G7 economies was only 1.3% higher than in mid-2015, well below trend growth.

Conditions vary between the big economies with the US and Germany the stand-out performers while Japan and Italy have lagged. Canada and the UK, which had shown solid growth performances earlier in this upturn, have lagged. Canadian growth was hit by falling commodity prices, the winding back of investment in energy sector and production shutdowns caused by forest fires. UK growth was hit by uncertainty delaying business investment in the lead up to the Brexit vote and, while the business surveys show a much less adverse impact from the Brexit vote than initially feared, we still do not have a clear picture of what the impact will be on business investment.

With the exception of a post Brexit bounce in the UK, possibly reflecting an influx of export orders as Sterling fell, the latest business surveys are not pointing to much growth in the manufacturing sector. However, things are considerably better in the services sector with a sizeable rebound in new orders for US service firms in September and consolidation of UK service sector activity at levels well above those experienced straight after the Brexit vote. Service sector expansion has been slowing in the Euro-zone and remains subdued in Japan.

As soft economic growth continues, there is growing concern that a combination of unfavourable demographic trends, disappointing productivity growth and the impact of a prolonged period of sub-trend investment on the capital stock could have lowered the rate of growth that big advanced economies can sustain. Alongside this is the fear that economic policy has been too harsh and compressed demand, further hitting growth. The IMF is clearly now worried that “secular stagnation” is possible.”