Where to Find Growth in Developed Economies

As we have reported extensively, the past four years have seen global economic growth rates hover at around 3% per year, hardly the recovery that many economists had expected in the wake of the global financial crisis.  A few years ago, most of the blame for this sluggish growth was rightly attributed to the poor performance of most of the world’s developed economies.  However, recent years have seen a sharp slowdown in growth in most of the world’s leading emerging markets, placing a greater burden on developed countries to generate growth for the global economy.  While growth rates in the United States and some European and Asia-Pacific developed economies have risen a little in recent years, growth rates among most developed economies remain disappointing.  Nevertheless, there are hopes that developed world growth will accelerate in the coming years, providing a needed boost for the global economy.

Among developed economies, the United States, despite its recent wobbles, remains the best hope for growth in the coming years.  After growing by 2.4% in 2015, the US economy has managed to grow by an average of 2.1% per year since 2010, a better performance than most developed economies, but hardly a robust recovery from what was the worst economic downturn in the US since the Great Depression.  Looking ahead, growth rates are forecast to remain near current levels in 2016 and into 2017, with consumer spending rising, but export growth falling due to a strong US dollar and weak demand in key export markets.  As such, US consumers will once again play a key role in generating growth for the global economy, and the US is expected to account for more than a quarter of the increase in global economic output over the next two to three years.  Elsewhere in North America, Canada’s current slump will continue over the near-term as lower oil and natural resource prices depress growth.  However, Canada’s longer-term outlook remains favorable and higher growth rates will return later this decade.

The outlook for the leading developed economies in the Asia-Pacific region is a mixed bag.  On the down side, Japan’s economy continues to struggle and is not expected to generate much growth at all in the coming years as export demand remains weak and domestic demand continues to fall.  On a more positive note, South Korea continues to record solid rates of economic growth, as that country has emerged as one of the world’s wealthiest developed economies in recent years.  Likewise, Australia has managed to successfully offset the impact of falling natural resource prices to record strong rates of growth in recent months, a trend that is likely to continue in the coming years.  Meanwhile, economic centers such as Singapore and Hong Kong are expected to continue to attract significant amounts of trade and investment as they benefit from the overall expansion of the massive Asia-Pacific economy.  Together with the region’s large emerging markets, these developed economies will help to maintain this region’s leading position as a driver of global economic growth.

Finally, while Europe has been the source of many of the world’s economic problems in recent years, some bright spots have emerged in this region.  For example, economies on the periphery of Europe such as Britain and Spain have managed to pull out of their deep recessions and have been able to record impressive rates of growth in recent years.  Likewise, economies such as Germany and Sweden that have the ability to export outside of Europe have also managed to perform relatively well of late.  While overall growth rates in Europe are forecast to hover at around just 1.5% per year in the coming years, there will be opportunities for growth in the region, particularly in those countries that have high-end manufacturing and service sectors (Britain, Germany or Sweden), or those that have enacted serious economic reforms in recent years (Spain or Ireland).  With domestic demand forecast to grow at a sluggish pace in the years ahead, it will once again be export competitiveness that determines the success of individual European economies.