Adapting to sluggish global growth

Au out of the pandemic crisis, some economic analysts had imagined the scenario of a period of euphoria, a sort of catch-up following the artificial shutdown of the world economy, somewhat on the model of what happened in the crazy years, following the terrible bloodletting of the Great War. But, exactly a century later, the 2020s will not look like the famous “roaring years”, as the global growth forecasts published on April 11 by the International Monetary Fund (IMF) have just confirmed. The institution now anticipates global growth of 2.8% this year and 3% on average over the next five years, the worst medium-term outlook since 1990.

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If there was any catch-up, it was short-lived and the momentum quickly turned into widespread disruption. The Covid-19 crisis has disrupted globalization by disrupting supply chains. Then began an energy crisis that Russia’s invasion of Ukraine only exacerbated, leading itself to a period of high inflation that we thought was over. From now on, the central banks, following having wavered on the structural nature of the rise in prices, are forced to intervene in disaster by raising interest rates, threatening to slow down an already timid growth too abruptly.

Monetary policies are all the more to be handled with care as the rapid rise in the cost of money has started to cause chain reactions. To the bankruptcy of regional banks in the United States was added the rescue of Credit Suisse, whose fragility threatened to destabilize the financial system.

Sustained growth, a parenthesis in history

At the same time, the shocks of the past three years have only worsened the situation of debt overhang in many developing countries. Rise in interest rates, in the dollar, in the prices of agricultural raw materials and the urgent need to find financing to fight once morest climate change: the challenges are piling up.

Even assuming an easing of international tensions, which is unlikely at this stage, the economic outlook is hardly encouraging. On both sides of the Atlantic, what economists call underlying inflation, that is to say the evolution of prices excluding energy and food, seems to be setting in. Even if the Federal Reserve and the European Central Bank have already come a long way in terms of raising interest rates, they are not regarding to come down and, in any case, the effects of monetary policies on inflation will not be felt for one to two years.

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It is necessary to realize that the sustained rate of growth of the last sixty years has only been a parenthesis in the history of humanity. Given the aging population on a global scale, the scarcity of resources, the environmental emergency, the stabilization of the Chinese economy, greater regionalization of international trade, the economic slowdown is inevitable. This prospect of a more constrained world economy requires us to be more vigilant regarding the quality of growth rather than its quantity. This leads to setting priorities. Aid to the poorest countries and the fight once morest climate change must be at the top of the list to imagine a prosperity that is compatible with the finiteness of the planet.

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