20180703-NATIXIS-What_mechanisms_could_slow_the_global_economy__7页_756kb

Flash Economics Summary

Core Content

This document titled "Flash Economics" from 03 July 2018 discusses the potential mechanisms that could lead to a slowdown in the global economy. It distinguishes between cyclical and structural factors and evaluates their impact on economic growth.

Main Points

1. Mechanisms That Could Slow the Global Economy

The global economy may slow due to a combination of supply-side and demand-side mechanisms:

• Rising oil prices:

  • Oil-importing countries have a higher marginal propensity to spend than oil-exporting countries.
  • Current upward pressure on oil prices is due to geopolitical tensions and strong global demand.
  • This is a demand-side mechanism as it affects spending and growth.

• Rising interest rates in high debt contexts:

  • The global debt ratio is extremely high.
  • A rise in interest rates would reduce borrower solvency and thus slow growth.
  • Interest rates are currently rising only in the United States and emerging markets (excluding China).
  • This is also a demand-side mechanism.

• End of the investment expansion cycle:

  • A decline in the investment rate could trigger a slowdown.
  • However, the current global investment rate is already low, and the capital intensity is in decline.
  • Corporate profitability is currently high and stable, suggesting no immediate risk of a downturn in investment.
  • This is a cyclical mechanism, though it may have structural implications.

2. Structural Mechanisms Inhibiting Growth

• Decline in global potential growth:

  • Labour productivity is slowing, which is a key driver of potential growth.
  • This is a structural mechanism, as it reflects long-term trends rather than short-term fluctuations.

• Shift towards a services-based economy:

  • The global economy is increasingly shifting towards services, which have lower productivity growth compared to manufacturing.
  • This is another structural mechanism that affects the long-term growth trajectory.

3. Cyclical vs. Structural Outlook

• Cyclical indicators suggest a slight slowdown in global growth, but not a significant one.
• Structural factors indicate a more persistent slowdown due to lower potential growth and the nature of the global economy moving towards services.
• Overall, the global economy should be expected to slow due to the combined effect of both supply-side and demand-side mechanisms.

Key Information

• Chart 1 shows the rapid growth of the global economy since 2003.
• Chart 2 indicates a slight slowdown in the composite PMI.
• Chart 3 and Chart 4 highlight the relationship between oil prices and global GDP growth.
• Charts 7, 8A, 8B, 9A, 9B illustrate the high global debt ratio and the current upward trend in interest rates in certain regions.
• Charts 10, 11, 12, 13 show the current low investment rate and high corporate profitability.
• Charts 14, 15, 16 present the decline in potential growth and the shift to a services economy.

Conclusion

The global economy is expected to experience a slowing growth rate due to both cyclical and structural factors. While demand-side mechanisms like rising oil prices and interest rates in high-debt economies may contribute to this slowdown, structural issues such as declining potential growth and the shift to a services-based economy will have a longer-term impact.

Disclaimer

• This document is intended for professionals and qualified investors only.
• It is strictly confidential and cannot be disclosed to third parties without prior consent.
• It is not a personalized investment recommendation and does not constitute a financial analysis.
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• Personal views of the authors may differ, and other reports may present different conclusions.