On December 18, the Lowy Institute for International Policy in Australia published an article entitled "Not Doom, but to Adapt to the Continued Downturn of the World Economy", written by John Edwards, a senior researcher at the institute. The following is an excerpt from the full text:
For more than two years, the global economy has been at the center of contention about prices**, rising interest rates, and the possibility of a recession and rising unemployment. As 2023 draws to a close, this long-running debate is over.
Underlying inflation in Australia and the US peaked more than a year ago. It has been on a downward trend ever since. If this trend continues, and there are good reasons to expect it, the current inflation figure will move within the central bank's target range by the second half of 2024.
Unemployment rates in Australia and the United States have remained below 4 per cent and are far from a recession. With inflation falling and output growth slowing, most central banks have stopped raising interest rates. It will be a long time before interest rates are cut, but the tightening phase in the US, Australia and Europe is likely to be over.
Both the pandemic and post-pandemic inflation are over. Now it's time to think about what's next.
One thing we do know is that several of the important trends that have defined our economic experience over the past three or four decades are now less important.
China's economy has grown tenfold in the past 30 years and contributes more than a quarter to world economic growth. The living standards of Chinese will continue to improve, and more Chinese industries will move to the forefront of global technology. As the world's second-largest economy, China's economy will be no less important to the world than the United States. But China's massive contribution to world economic growth, as well as export growth to resource-producing countries such as Australia, will decline steadily.
Two-thirds of global GDP growth over the past 30 years has been driven by growth. It is likely that this will not be the case for the next few decades. Thirty years ago, exports accounted for less than one-fifth of global GDP. By 2008, it was close to one third. Today, exports as a share of GDP are about the same as they were in 2008, which means that exports have slowed considerably. Rich economies mainly produce service goods, which do not cross borders as easily as commodities. Measured as a percentage of output, globalization has not regressed, but has long since stabilized. This has removed another impetus for world economic growth.
Long-term interest rates began to fall 40 years ago, first in response to lower inflation, and then by central banks in response to the 2008 financial crisis and the subsequent pandemic. In 1984, the interest rate on 10-year U.S. bonds was 14%. By mid-2020, the rate was just above 05%。Low interest rates have driven 8x US stock prices and 10x US nominal wealth. This long-term decline in interest rates has also come to an end. U.S. bond rates are back to where they were at the beginning of the century.
Given the dangers of inflation, the central bank will not reduce short-term interest rates to the very low levels of the past 15 years. Most** accumulated significant debt in response to the 2008 crisis and the pandemic. They have a sustained need for debt rollover, which is further amplified by most** fiscal deficits.
Absent" includes productivity. For decades, economists have not been able to figure out when productivity surges began or ended, or why. However, there is no doubt that productivity in most rich economies, including Australia, the United States, and European countries, has not risen for a long time. Productivity growth has been a strong support for overall economic growth over the past 40 years. Not anymore – or at least not yet. If a slowdown in labor force growth coincides with a slowdown in productivity growth, the result is slower income and production growth.
So, what about the frenzied pace of technological change, the possibilities of artificial intelligence, quantum computing, and so onWhat about the huge shift to green technology?Won't these changes drive significant productivity gains?Maybe. But as it happens, the long period of slowing productivity growth has coincided with the rapid technological change of the last decade or so. Some technologies increase the output of labor per hour, while others simply make our lives more entertaining or more complex. Let's not forget that electric vehicles replace gasoline vehicles, and new forms of energy production replace existing ones. They are the changes we need to make to save the planet – but they don't have a specific prospect of productivity gains compared to what they replace.
After coming out of a severe recession, growth is usually above average as the economy recovers. But we are not out of a severe recession. Therefore, we should not count on recovery. At best, we can only expect that for a sustained period of time, average output growth will be significantly lower than over the past 30 or 40 years, and that growth in the value of financial assets will be much more modest. As long as we accept its inevitability, the path is not so bad. But we should anticipate a more intense struggle over the distribution of income and wealth. (Compiled by Ge Xuelei).