Reality Sets In

Despite ample signs to the contrary, global economic institutions have remained remarkably optimistic about the state of the world economy. This week, that suddenly changed. The World Bank and the World Trade Organization both downgraded their economic outlooks. Even more significant, both finally acknowledged that we are experiencing not just a cyclical downturn, but a long-term decline in the rate of economic growth.

“Across the world, a structural growth slowdown is underway,” according to the World Bank. “[A]t current trends, global potential growth—the maximum growth the global economy can sustain over the longer term without igniting inflation—is expected to fall to a three-decade low over the remainder of the 2020s.” Meanwhile, the WTO cut its forecast for international trade in 2023 by more than half, to a scant 0.8%.

The WTO still forecasts trade to grow by 3.3% in 2024. I expect that forecast to be revised downward as well — particularly because the organization also acknowledges that the share of intermediate goods in international trade has tumbled. If fewer intermediate goods are moving through supply chains, neither the volume nor the value of goods trade is likely to expand very much.

Both reports attribute much of the slowdown they now forecast to geopolitical events, such as the war in Ukraine and increased tensions between China and some of its major trading partners. That is not incorrect. But as I argue in Outside the Box, slowing population growth and aging populations are likely to be long-term drags on consumer spending on goods, while technological changes will reduce the need for widely traded goods such as auto parts and components for industrial machinery.

Meanwhile, deliveries of new container ships are at a record high, and container terminals around the world are racing to add new capacity. I’d be interested to understand why.


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