International | Oct 06 2022
Oxford Economics does not anticipate a return to strong global growth any time soon, as a series of short-term and longer-term macroeconomic factors drag on economies.
-Poor economic outlook has driven a demand decline
-Global supply chain pressures improve as markets reopen, but freight rates have declined
-Macroeconomic environment likely to drag on global growth longer-term
By Danielle Austin
The Oxford Economics analysts find global growth at risk from both near and long-term headwinds as economies prepare for impending recessions.
Post-pandemic, economies have struggled to find balance between rising interest rates and rampant inflation, and analysts expect impacts to be far-reaching.
Rising costs and weakening demand to weigh on supply chain issues
Supply chain issues have challenged economies throughout and following the pandemic, as measures such as lockdowns weighed on supply chains. Analysts have seen signs of supply chains loosening in recent months as markets reopen, but Oxford Economics have warned a new set of pressures is likely to exacerbate supply chains moving forward.
While concerns have lingered over the impacts of ongoing lockdowns in China, the analysts have found these concerns to be inflated and impacts of lockdowns to be largely well-managed.
Despite the alleviation of supply chain bottlenecks from China, Oxford Economics has found a downward trend in the global container freight index in recent months to suggest a declining demand for goods. Freight rates have declined more than -50% since April, and the analysts expect the sharp decline in demand has been driven by the marked deterioration of the global economic outlook.
Oxford expects the shipping decline to partly reflect a demand shift away from goods and back to services, it also feels high inflation and a rising interest rate cycle is likely a driver of a demand slowdown.
Looking ahead, Oxford sees the shutdown of gas supply from Russia to Europe as likely to exacerbate supply chain issues. Energy intensive industries in particular are likely to pass on rising input costs to final prices, as will downstream sectors reliant on refined petroleum products.
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Impending recessions and demographic changes to have longer-term impact on productivity and growth
The longer-term outlook from Oxford Economics fares little better than the short-term. The analysts see a shifting economic environment as a risk to global growth. While growth has already been on a consistent downward trend since the Global Financial Crisis, the analysts expect macroeconomic conditions to drive further declines to 2.5% growth by 2030, from a current 3.0%, and to 2.0% growth by 2040.
Weak productivity growth, the slowdown in China, deglobalisation, climate change, and, in particular, impending recessions in major economics and changing population demographics are expected to drag on growth over coming years.
Looming recessions remain a risk key to growth, more recently heightened by surging inflation, energy pricing and monetary tightening measures. Oxford finds impending recessions could cause longer-term impacts on advanced economies, with unemployment, delays to investment, and damage to innovation all limiting economic growth.
A global demographic shift is another huge risk to growth in advanced and emerging economies through the rest of the decade. The market expects labour supply growth in advanced economies to halve between 2020 and 2030 compared to the previous decade to 0.2% annually, and drop to 0% in the next decade.
Emerging economies are expected to fare worse, with supply growth expected to decline to 0.3% this decade from a previous 0.8%, before falling into negative growth in the coming decade. While improvements in human capital are expected to continue, it will not be enough to offset the drag created by slowing labour force growth.
In a positive, Oxford Economics believe governments could implement policy to address some of these headwinds. Maximising labour force participation, encouraging investment and entrepreneurism, and removing obstacles to market mobility could all help alleviate pressure, although shifting population demographics will be harder to address through policy.
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