The Global Economy Is Better Than Expected, Says Conference Board

The global economy this year has grown better than expected – and that momentum will continue to generate a 3 percent growth rate through 2018, The Conference Board’s economists said at a media briefing Monday.

The economic research group also gave their take on a variety of scenarios that could impact the economy, including possible shocks that could cause a recession, the prospects for U.S. tax reform, and how artificial intelligence and other emerging technologies will likely impact the economies across the globe.

“[Worldwide] growth has finally left the starting gate since the global economic and financial crisis,” said Bart van Ark, The Conference Board’s chief economist. “GDP growth, which we predicted to grow at 2.8 percent a year ago, is likely to end at about 3 percent for 2017, and through 2018.”

While the growth path of mature markets will remain solid in the short-term, potential for much faster growth is limited, and a growth slowdown is likely to set in later in the decade, van Ark says.

“The good news is that a larger role for qualitative growth factors may help sustain growth and provide better conditions for businesses to thrive over the next decade.”

“As some major emerging markets are maturing themselves, especially China, they are unlikely to return to growth trends of the past,” he said. “The good news is that a larger role for qualitative growth factors – an improvement in labor force skills, digitization and especially stronger productivity growth – may help sustain growth and provide better conditions for businesses to thrive over the next decade.”

The research group also speculated on future events, actions and trends that could impact the world’s economies.

Ataman Ozyildirim, an economist and director of business cycles and growth research, said the risks that would cause the global economy to dip into a recession could come from many shocks, including energy markets, or some geopolitical conflict that would create a contagion in the financial markets globally and then create a crisis in confidence.

“There also could be significant mistakes regarding monetary policy,” Ozyildirim said. “If the Fed were to tighten too fast or approve too large of interest rate hikes, it could create enough of a rise in business costs, as well as create a crisis in confidence, causing people to pull back on their spending and investments.”

Regarding any Congressional action on taxes, there’s going to be an increasing emphasis on individual tax cuts and individual “loopholes,” such as the mortgage interest deduction, with perhaps less of an emphasis on corporate tax cuts, said Brian Schaitkin, senior economist in U.S., economic outlook and labor markets.

“As a result, I would expect more of an impact on shorter-term consumption rather than impacts on investments” by businesses, Schaitkin said.

There is a chance that federal tax legislation might not pass – though “this is proving to be not quite as unpopular as the healthcare bill,” said economist Ken Goldstein, who’s in charge of forecasting near-term economic development.

As for how artificial intelligence, machine learning and emerging technologies such as self-driving cars will impact the U.S. economy, Ozyildirim said that digital transformation is playing “a big role in the long-term strategic growth trajectory,” but in the short-term, the impact on the economy is modest, at best.

“Presently, there is a lot of technical difficulty in translating these technologies into commercial success, as it’s still in the experimental phase,” he said. “Until they are widely used, I don’t see that growth trajectory picking up appreciably.”

However, in Europe, emerging technologies have now gone past the experimentation phase and are now entering “the deployment phase,” said Ilaria Maselli, a senior economist for Europe.

“The prospects for growth in productivity is substantial, so I think we’re on the more optimistic side of the debate,” Maselli said.

The research group also gave five “big predictions” about the global economy in 2017 and beyond:
No. 1: The current strength in global economic conditions provides good conditions to take on more risk.
No. 2: The window for macroeconomic tailwinds may be narrow as there is no shortage of domestic and global political and economic risks.
No. 3: The challenge in emerging markets is to keep driving value in economies that are likely to grow more slowly over the next 10 years.
No. 4: Firms need to adapt to increased labor market tightness, and especially focus on getting better at attracting and retaining talent.
No. 5: The transition to a faster innovation and productivity-driven growth path is an up-hill battle – often not smooth or without crisis.

Overall, growth is slow but steady. However, we can anticipate a recessionary slow-down after 2018 and companies should start preparing now.

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Katie Kuehner-Hebert

Katie Kuehner-Hebert has more than two decades of experience writing about corporate, financial and industry-specific issues. She is based in Running Springs, Calif.