Are we to believe that slower growth in the world economy is here to stay? Christine Lagarde of the International Monetary Fund thinks so; “the new mediocre” is the managing director’s disheartening term for what she sees as the new normal. The worsening forecasts published in successive issues of the World Economic Outlooksupport her view (see charts). Significantly, while the performance of high-income economies has been poor, especially in the eurozone, in the medium-term it is the emerging economies whose prospects appear bleakest.
Yet disappointments need to be kept in proportion. If average annual growth of emerging economies were to remain over 5 per cent, their output would double every 14 years. This would mean rapid increases in the standards of living of a huge proportion of humanity. An additional source of good cheer is that the economies of emerging Asia are expected to achieve growth of 6.5 per cent this year and 6.6 per cent in 2015. This is no small matter, since emerging Asia contains half of humanity. The IMF has made no downgrade of its forecasts for emerging Asia since last April. In addition, the second-fastest growing region is sub-Saharan Africa. Its growth is forecast to be 5.1 per cent this year and 5.8 per cent in 2015. Since these two regions contain nearly all of the world’s poorest people, this performance is of far wider human significance than are the disappointments elsewhere.
The worry, however, is that the downgrades might continue into the more distant future. One reason for believing this will not be the case is the scale of recent disappointments. The Russian economy, for example, is stagnant. Performance of the Latin America and Caribbean economies is little better, with growth forecast at 1.3 per cent this year and 2.2 per cent in 2015. It is always possible for these economies to do still worse: Vladimir Putin’s embrace of a hostile relationship with the west may make that quite likely for Russia. But substantial upside potential also exists.