Though the IMF is looking at a slight improvement in global growth next year – from 3.1% in 2016 to 3.4% in 2017 – much of the growth is going to come from emerging and developing economies; in 2016, it could be three fourths. Indeed, that dependence will increase over time. GDP growth in developed conomies is projected to rise from 1.6% in 2016 to 1.8% in 2017 and fall slightly to 1.7% by 2021 – that in emerging/developing economies will rise from 4.2% to 4.6% and finally to 5.1%. What is worrying, however, is the downside risks to the forecasts, especially for developed economies – that is primary reason why these forecasts have been revised downwards with each update of the World Economic Outlook. One, the slowing population growth has pushed economic output lower. Two, with little investments in these economies, the productivity per employee is slowing – that, in turn, is limiting disposable income which, in turn, is resulting in a lower investment situation. In the period 2008-14, the IMF points out, labour productivity growth was below pre-crisis trends for all but one of a sample of some 30 advanced economies.
In such an environment, increased trade is an obvious way out since this is what propelled growth in the post-World War II period. Yet, as IMF points out, the world is seeing increased protectionism – the Trump campaign, needless to say, epitomizes this view. Between 1985 and 2007, real world trade grew on average twice as fast as global GDP while it has barely kept pace over the past four years – in absolute values, the IMF points out, the volume of world trade in goods and services has grown by just over 3 percent a year since 2012 which is less than half the average rate of expansion during the previous three decades. While the slowing of trade has a lot to do with global investment demand slowing, especially in China, as well as changes in Chinese supply chains which has made its GDP growth less import-intensive, increased protectionism has shaved 1.75 percentage points of annual global import growth since 2012. Since it is not clear whether global leaders will be able to get together to reverse the de-globalisation being witnessed, getting global growth back on track will take a lot of time, even assuming China is able to slow in an orderly fashion. While slow trade growth will act as a ceiling to India’s growth ambitions, the good news is that in the current – and projected – global scenario, India shines like a beacon of hope.