GLOBAL OVERVIEW A persistent downtrend in productivity growth, an ageing population and crisis legacies suggest that much of the global economy is struggling with secular stagnation – a marked slowdown in longer-term growth prospects. Regarding crisis legacies, continued excessive debt levels and increased financial sector regulation keep negatively affecting economic activity, particularly in the Euro area. Potential growth in the Euro area is estimated at just 1% in 2016, down from 1½% prior to the financial crisis. In the US, potential growth has probably fallen from around 2½% to currently only 1½%. The growth potential might revive from current levels as economies move closer to full employment. But the risk is that ageing populations might be a sustained brake on risk-taking, with companies holding back investments due to diminished expectations regarding long-term growth prospects. Another lesson learned is that the adverse effects of the plunge in oil prices on oil producers have been underestimated and the positive effects on oil importers overestimated. The negative impact on energy companies’ investments, spilling over to sub- suppliers and investors, has somewhat offset the boost to consumption in oil-importing countries. The modest impact on consumption is probably related to high levels of indebtedness as some of the real income gains from lower energy prices have been used to reduce debt, rather than spent. Limited passthrough of energy price declines to consumers may also have been a factor. Moreover, the huge terms of trade losses suffered by commodity-producing countries have negative effects on financial market flows and global trade, impacting the manufacturing sector in many countries. The decline in the amount of petrodollars – money earned from the sale of oil – has taken away a substantial source of demand for financial assets and contributed to tighter financial conditions in advanced countries. That said, we believe the net impact of low oil prices will ultimately be positive given a higher propensity to spend for oil importers relative to oil exporters. This view is supported by IMF estimations showing that a 50% drop in oil prices should boost global growth by ½% point. Thus, thanks to oil prices, less drag from EM, easy monetary policy and, “Much of the global economy is struggling with secular stagnation” Johnny Bo Jakobsen Nordea chief analyst A / Global economy still stumbling forward Global real GDP growth and global composite PMI B / Private-sector deleveraging has only just begun Private non-financial sector gross debt A/ Still no signs of a return to a robust global recovery. B/ Excessive debt levels continue to act as a drag on global growth. Sources: Nordea Markets and Macrobond e Ir et N e Sw en D r Po or N l Be i Ch a Sp a Fr K U n Fi p Ja EA S U t Au re G a It er G GDP GROWTH FORECAST, % Y/Y World New 2014 2015 2016 2017 3.4 3.0 3.1 3.2 Old 3.4 3.1 3.5 3.4 New 1.9 2.0 1.8 1.9 G3 Old 1.5 1.9 2.1 2.0 BRIC New 5.8 4.9 5.2 5.6 Old 5.8 4.9 5.4 5.6 New 2.4 2.4 2.0 2.2 US Old 2.4 2.5 2.7 2.5 Euro area New 0.9 1.5 1.3 1.4 Old 0.9 1.5 1.7 1.7 China New 7.3 6.9 6.5 6.0 Old 7.4 6.8 6.6 6.2 Japan New -0.1 0.5 0.8 0.5 Old -0.1 0.5 1.0 0.6 New 2.9 2.2 1.9 2.0 UK Old 3.0 2.6 2.4 2.2 2 / 2016 / Nordea Economic Outlook / 33
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