DBS said in a note recently, just a myth is the persistent belief that global economic growth is “dangerously slow” and fragile.
“If you’re worried about slow growth today, get used to it. It’s probably going to be slower five years from now and slower yet five years after that,” David Carbon, chief economist at DBS, said in the note.
Keeping unchanged from its April outlook, global economic growth of 3.5 per cent for 2017 and 3.6 percent for 2018 was forecast by the International Monetary Fund in the July update of its World Economic Outlook.
Amid concerns about “shocks” upsetting the apple cart, countries were urged to pursue structural reforms, such as commodity exporters diversifying their economies in the IMF report.
But Carbon said that with slower gross domestic product growth due mainly to slower working-age population growth, economic growth wasn’t in the danger zone when it’s “looked at the way it should be: in per-capita terms.”
“Per person of working age, growth doesn’t appear to have slowed at all since 1980,” he said. “To the extent that slower growth results from slower population growth, the response should be: who cares? It’s growth per person that matters — your income, my wage — not growth in the aggregate.”
Compared to the population growth overall, the working-age population growth was falling much more rapidly, Carbon noted.
Talking about Japan, while the working age population fell five times more rapidly, by 1 percent each year, the population as a whole fell by 0.2 percent in 2016, he pointed out.
While in the U.S. the working-age group was growing at 0.4 percent a year, down from 1.2 percent a year a decade ago, a 0.1 to 0.2 percent decline in Europe’s working-age population was noted by Carbon which led him to believe that Europe and the U.S. changes weren’t quite as stark, but still showed the same pattern.
He said, suggesting much slower economic growth, that translated into simple math.
“Since GDP growth is the sum of labor force growth (in simple terms, WAPG) and growth in output per-person (i.e., productivity growth), a one percent drop in working-age population growth brings an equivalent one percent drop in potential GDP growth,” he said.
Down from 3 percent more than a decade ago, the potential GDP growth in the U.S. was now less than 2 percent a year, he said.
Carbon said that global economic growth was running at or above potential, was also indicated by it.
“Where’s the crisis? Where’s the danger? Why should governments pull out all the stops to raise it further? And would it do any good,” he asked. “Odds are, it wouldn’t.”
Japan’s economy would become the world’s best performer, alongside Germany, with growth twice that of the U.S. and France, even while Japan’s economy was widely considered a laggard, on a per-capita basis, Carbon noted.
“Whether judged over eight years or 16 years, Japan and Germany are the global growth leaders. The U.S. is a distant third. And France has performed every bit as well as the U.S.,” he said
(Adapted from CNBC)