‘Global growth trap’
We often make some significant mistakes when we look at our economic conditions only from within, without taking a much wider look at the global economy as a whole or at situations that could also impact on the local conditions.
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Yes, it is very easy to see the immediate effects of what is not working around you but the unseen is equally important as a cursory look at the wider picture could influence expectations and help devise realistic solutions.
Let us consider the following example: If country A’s GDP growth is 2 per cent, it is always better to do a comparative analysis to see how it compares with countries in its category of income and population for example.
So if you hear of sub-regional analysis, it is possible mainly because countries within a particular geographic area are likely to have a few common indicators so comparing situations wouldn’t be farfetched, all things being equal.
So, this week, we are going to look at the trapping of the global economic performance on us all. And we are going to do this using the Organisation of Economic Cooperation and Development’s (OECD) interim economic outlook report released on September 21, setting out the projected path of the global economy.
“Global GDP growth is projected to remain flat around 3 per cent in 2016 with only a modest improvement projected in 2017. This forecast is largely unchanged since June 2016 with weaker conditions in advanced economies, including the effects of Brexit, offset by a gradual improvement in major emerging market commodity producers”, the report in part said.
It highlighted that “overall, the world economy remains in a low-growth trap with persistent growth disappointments weighing on growth expectations and feeding back into weak trade, investment, productivity and wages”.
This grim view is shared by many, with market analysts and economists agreeing, in large portions, that global growth would remain slow for considerable number of years, as any expected upturn in the medium term is doused by the unexpected vote by Britain to leave the European Union (EU).
And the trap is not set on OECD member countries alone. With a membership of 35 countries that include influential countries, since 1961 this intergovernmental economic organisation has had considerable effects on the direction of the global economy.
In 1948 for example, records have it that in its old form (Organisation for European Economic Co-operation (OEEC)), it pushed for the implementation of the Marshal Plan, devised to help the reconstruction of Europe following the end of the Second World War. OECD became fully cemented in 1961.
It therefore follows that events of consequential nature affecting OECD countries have that multiplier effect on non-OECD countries, with Ghana included.
Explaining the monetary policy decision on September 19, two clear days before the OECD released its report, the Governor of the Bank of Ghana, Dr Abdul-Nashiru Issahaku, emphasised global economic situation as some of the possible headwinds to growth.
“According to the IMF’s July World Economic Outlook, global growth prospects have weakened further following the UK vote to leave the EU. In addition to the lower growth forecasts, there are expectations of sustained low and negative interest rates across global financial markets, while the U.S. Fed inches closer to a year-end rate hike. These developments could have implications for Ghana’s balance of payments”, the Governor said in his press statement on September 19.
That is not all though. According to the Governor, uncertainties in the international oil market, among other risks, “could slow the pace of fiscal consolidation and hinder efforts to restore macroeconomic stability”.
To the extent that Ghana is part of the global financial system, it is affected by global events just like all other countries. It is for that reason that the economic managers look at all external factors that could have effect on the local economy when making economic decisions.
That also means that your understanding of global events, all things being the same, should shape your financial and other investment decisions. So, let us take some global economic lessons, mostly drawn from the OECD’s interim outlook report. Shall we? Great!
The obvious implication of the OECD report is that the global economy is still not out of the woods yet. You may recall, if you have followed this column diligently, that the global financial crisis that came to a boil in 2007 affected many economies severely.
The financial markets of advanced countries were hard hit by the crisis, with the United States and the United Kingdom, for example, devising public sector financial support and initiatives to shore up the economy.
Counties like Greece and Cyprus were seriously under siege during the peak periods of the crisis.
Since 2012, economic reports have alluded to market rebound of some sorts, even if the recovery has been slow. The grim reminder from the OECD report serves as a wake-up call that the champagne should still be on ice! We are still not out of it yet.
“The prolonged period of weak global demand is increasingly causing adverse supply-side developments and contributes to the self-fulfilling low-growth trap”, the OECD said.
In summary, countries must tighten up prudential financial management to ensure that the global economy improves. That way, we shall all benefit from the economic rebound.
