Who is Driving Global Economic Growth?

Trade growth has slowed since 2012, relative to both its strong historical performance and to overall economic growth. According to data provided by the IMF, the overall weakness in economic activity – in particular in investment – has been the primary restraint on trade growth. Also contributing to the slowdown has been the waning pace of trade liberalization and the recent uptick in protectionism. Average annual global output growth through 2021 is estimated to be 3.0 percent.

The global economy remains sluggish moving into 2017, but the growth outlook is nevertheless somewhat stronger than in recent years. After slow momentum in 2016, global growth is projected to recover to 3.4 percent in 2017. This forecast reflects a more subdued outlook following the June 2016 U.K. vote in favor of leaving the European Union (better known as Brexit), as well as weaker-than-expected growth in the United States. Financial market sentiment toward emerging market economies will continue to improve in 2017, with emerging Asia in general and China and India in particular seeing the highest levels of dynamism over the next five years.

emerging markets performance

After years of increasing global economic integration, politicians are facing significant political pressure to limit imports. In June 2016, the WTO reported that the application of new trade restrictions by G20 economies reached its highest level since the organization began monitoring them in 2009. This increased protectionism is one reason why global trade remains below its pre-crisis peak, and continues to suffer from slow growth. The WTO estimated that trade expanded by a mere 1.7 percent in 2016, the slowest pace since the global financial crisis

Geopolitical tensions have been rising, leading to territorial disputes and international sanctions. At the same time, domestic politics is becoming more unpredictable in many countries around the world. Because of this, progress on multilateral free trade agreements such as the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (T-TIP) are increasingly unlikely to be ratified in the short to medium term.

Addressing the general weakness in economic activity, especially in investment, will stimulate international trade. This could in turn help strengthen productivity and growth. In addition, further reforms that lower trade barriers would boost the international exchange of goods and services, and in doing so it will revive trade and encourage growth.

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