BOFIT Viikkokatsaus / BOFIT Weekly Review 2023/51

The strength of global economic growth surprised many observers this year. A major driver was the robust performance of the US economy, which marched ahead even with monetary tightening by the US Federal Reserve and similar tightening in major economic blocs such as the euro area. Growth going forward is expected to slow slightly. The latest OECD forecast sees the global economy growing by 2.9 % this year and 2.7 % next year. These figures are distinctly lower than in previous decades. During 2000–2019, for example, the global economy grew at an average rate of 3.8 % a year.

In addition to monetary tightening policies, global economic growth is hampered by the long-term impacts of the Covid-19 pandemic, tighter fiscal policies and declining global trade. The OECD expects exceptionally low global trade growth of just 1.1 % this year and 2.7 % next year. Both figures are well below the average growth of 4.7 % a year during 2000–2019.

Several factors are depressing growth in international trade. First, barriers to international trade have increased, due in part to geoeconomic fragmentation (i.e. policy-driven reversal of integration with the global economy). For example, the WTO says that trade related to international production chains has fallen by 10 % since 2021. Second, demand is weak in Europe and Asia, two major trading blocs. Finally, the consumer focus since the lifting of covid restrictions has shifted more towards services that are less traded internationally than goods. However, international trade in services such as tourism services has experienced robust growth this year.

The outlook next year for the global economy and world trade is governed mainly by the same factors as this year. Monetary policy should remain tight, and the impacts of monetary measures taken this year likely have yet to fully work their way through to the global economy. Geopolitical conditions will remain a major risk factor. A worsening of conflicts in the Middle East, for example, would likely depress global trade further and cause energy prices to rise. Risks related to China’s economic development can also have large implications for the global economy.

OECD November 2023 forecast for GDP and global trade growth, %

202351_ru1.pngSource: OECD.

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