While global growth in 2015 will be at the 25-year average of 3.8% to 2007, David Lipton, first deputy managing director, at the International Monetary Fund (IMF), said at the weekend. However while global growth will continue to be positive, the emerging markets and the Eurozone are facing a period of subdued growth.
"In the emerging market economies, you have reasonably strong, although slower growth, out of China, better than what we had thought out of India, and clearly a major slowdown in countries like Brazil and Russia," Christine Lagarde, IMF managing director, said at a press conference in Washington DC at the weekend annual meetings of the Fund and World Bank.
Latest data from Markit's PMI (purchasing managers' index) surveys for 19 emerging markets signalled that services activity rose at a stronger rate than manufacturing output for the second month running. This was driven by the trend in China, as services activity in Brazil, India and Russia rose at either weak or marginal rates. Among goods producers, those in the Czech Republic posted the strongest growth in September, while declines were registered in Brazil, South Korea and Poland.
New business growth remained close to June’s 15-month peak, but remained slower than the average over the nine-year series history. Consequently, outstanding work declined slightly for the third month running, and employment remained broadly unchanged.
The Financial Times says today that data from 19 large emerging economies collated by research firm Capital Economics show that industrial output in August and consumer spending in the second quarter fell to their lowest levels since 2009. Export growth in August also plunged.
These trends are contributing to a sense that slower growth is becoming a permanent fixture among the world’s most dynamic group of economies. “This is the new normal,” said Neil Shearing, chief emerging markets economist at Capital Economics. “For the rest of the decade this is it. This is as good as it gets.”
The Eurozone is also facing subdued growth and there is no consensus for a union wide stimulus nor was there one in the US.
The global model that was dependent on credit and commodity price booms coupled with surging emerging market growth, cannot be easily replaced.
France and Italy account for 37.5% of euro area GDP and Germany 28%.
In 2013 France’s GDP per person was ahead of the UK’s.
The three countries have about €2tn in public debt each and in 2012 Japan spent less than 1% of GDP on servicing costs while Italy spent 5.6% - - 60% of the debt was held in Italy.
In the early 1990s Italy was paying about 12% of GDP in servicing costs – almost 20% of current public spending.
So the recent dips in bond yields and about one quarter of the debt maturing in the short-term, is a help to the economy.