The global economy has more than doubled in size since 2000 with a peak in 2014 followed by a 5.7% drop and then a slow rise. The existing paradigm of global development is no longer effective, experts say. The growth potential is running out and is not benefiting the wider population or addressing poverty issues. The world economy is at the crossroads: will it embrace a new humanitarian dimension (the so-called inclusive growth) or focus on maintaining stability slipping into stagnation?
“We are stuck in a protracted period of low growth: 2016 marks the fifth consecutive year with global GDP growth below its long-term average. Too many people feel left behind, questioning whether the economy is working for them. In some of the advanced economies in particular, a populist sentiment is growing that threatens to shift the needle against economic openness”, said IMF chief Christine Lagarde at the conference on inclusive capitalism held in New York in October 2016. This point of view was shared by other international experts.
Early 2017 was approached with cautious optimism.
- In April 2017, IMF experts reported that the world economy is gaining momentum again, forecasting new jobs, bigger incomes and improved performance. In 2017, the economic growth will accelerate to 3.5% and in 2018, to 3.6% (against 3.1% in 2016) primarily on the back of favourable economic developments in Europe and Asia (mainly China and Japan).
The sustainability of this growth, however, causes concern due to a number of risks.
- The largest economies are highly leveraged. According to the Institute of International Finance, global debt has gone up by one third over the past decade. By the end of 2016, it reached USD 215 trillion, or 325% of the global GDP.
- Anemic GDP growth in China, the locomotive of the world economy. It is forecasted to reduce to 5.9% by 2019 from 6.9% in 2015.
- Slowdown in US economic growth. As reported by the US Department of Commerce in April 2017, the country's total output of goods and service grew by just 0.7% in Q1 2017, the weakest performance in three years.
- Huge disappointment with globalisation and the revival of protectionism. The April WTO report says that in 2016, the global trade growth was at 1.3%, hitting its lowest level since the 2008 financial crisis. IMF experts also note that the world’s top countries are shifting their priorities towards the national economy.
- Negative non-economic factors. The IMF World Economic Outlook lists the following risks: geopolitical tensions, domestic political discord, risks from weak governance and corruption, extreme weather events, and terrorism and security concerns
Key issue: economic development as an increase in the national wealth indicators does not translate into mass prosperity.
- In its 2012 report, OECD identified three problems that even the record levels of growth of the 1990s and first decade of 2000s failed to tackle: poverty, unemployment and inequality.
The concept of inclusive sustainable growth may be seen as an alternative to this approach. The best-known strategies in this regard is the Harmonious Society in China and Europe 2020, the European Union's ten-year strategic programme.
- According to the experts, the possible drivers of the growth inclusiveness are progressive tax policies, measures aimed at professional and geographical mobility of workers and market adaptation to structural changes, support to countries overcoming the consequences of conflicts, economic and humanitarian crises and natural disasters.
In early 2017, the World Economic Forum (WEF) ranked countries according to their level of inclusive (fair) economic development.
- In most developed countries, the correlation between the GDP per capita and the Inclusive Development Index (IDI) turned out to be high. For example, Sweden had the same rank for both measures.
- There appears to be a striking contradiction in US economic development: it ranked ninth in terms of GDP per capita but a very low 23rd on the IDI.
- Russia was ranked among developing economies getting quite a high score in terms of both GDP per capita and the IDI (11th and 13th respectively).