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Welcome to ‘the lukewarm twenties’? The strength of the US economy will not be enough to stimulate global growth


The global economy is in danger of stagnating in the coming years – and America’s robust economic strength may not be enough to save it.

“Without course correction, we are indeed heading towards ‘the lukewarm 20s’ – a slow and disappointing decade,” Kristalina Georgieva, managing director of the International Monetary Fund, warned a few weeks ago.

A mediocre performance in Europe and tepid growth in China (despite solid first quarter figures) are partly to blame. The good news is that despite major economic hurdles in recent years, such as geopolitical conflicts and high interest rates, a global recession is not in the offing. The bad news is that weak growth will leave many people feeling poorer.

The solution: Policymakers around the world need to tackle a range of economic problems, the IMF chief said.

Stimulating growth is crucial: When the economy grows, it improves living standards, promotes innovation and makes households wealthier. That reality is slowly slipping away for the 20-country eurozone, where growth has been flat. There are currently fears of an outright contraction if the European Central Bank does not reduce interest rates quickly.

In China the situation has not been much better. Last year, the world’s second-largest economy grew at its weakest pace in decades, bogged down by high youth unemployment and a floundering real estate sector. (First-quarter GDP figures suggest a recovery could have begun earlier this year.)

That’s in stark contrast to the United States, where growth has been strong thanks to strong consumer spending and productivity gains. America’s economic strength is precisely why the IMF last month revised its forecast for global economic output to 3.2%, up from the 2.9% forecast in October.

Several countries, including the US and some in the eurozone, have benefited from expanding the labor force in 2023, with immigration playing a key role, in addition to “sound macroeconomic fundamentals built in recent years”, Georgieva said. Economic growth in Spain and France was stronger than expected last year.

But the US is performing better mainly for one important reason: Robust productivity growth.

U.S. labor productivity, which essentially measures how efficient workers are at producing goods and services, rose in 2023 after declining the previous year.

It remains to be seen whether this momentum will continue. Productivity growth fell well below expectations in the first three months of the year, according to Labor Ministry data released last week. That employee efficiency Economists say the tailwind has been unique to the United States.

“Productivity has been a big factor, and compared to other countries in Europe, there are also cultural differences when it comes to spending,” Stephen Gallagher, chief US economist at Societe Generale, told CNN.

Americans have been on a spending spree in recent years, fueled by a solid economy labor market and the savings that have increased during the pandemic. Even though the U.S. economy isn’t running at the same red-hot pace as 2021, U.S. consumers have continued to spend at solid levels, which in turn has fueled growth. Consumer spending accounts for about two-thirds of U.S. economic output.

Gallagher said Americans are more likely to spend excess savings, while people in European countries are “simply more likely to hold on to their savings.”

Another key difference that props up the U.S. economy over that of the eurozone is the country’s energy sector, Gallagher said. Unlike the eurozone, the US is not heavily dependent on imports for its energy supply. Europeans pay much more for energy than Americans, and it becomes even more expensive when geopolitical conflicts threaten energy supplies, such as the ongoing war between Russia and Ukraine and escalating tensions in the Middle East.

A “course correction” is not an even stronger US economy: Economic policymakers around the world must address a range of important issues.

“Right now, policymakers are faced with a choice. They can avoid difficult decisions and try to muddle through with less good policies, or they can make a different choice,” Georgieva said. ‘They can … choose good policies: deal decisively with inflation and debt; and promote economic transformation to drive productivity, inclusivity and sustainable growth.”

“What we need is the ‘Transformational Twenties,’” she said.

Turkey has halted all import and export transactions with Israel in protest against the war in Gaza, my colleagues Hande Atay Alam and Olesya Dmitracova report.

“All import and export transactions related to Israel, including all products, have been halted,” the Turkish Commerce Ministry said in a statement on Thursday. “Turkey will strictly and decisively implement these new measures until the Israeli government allows an uninterrupted and sufficient flow of humanitarian aid to Gaza.”

A senior member of the Israeli government accused Turkish President Recep Tayyip Erdogan of violating trade agreements “by blocking ports for Israeli imports and exports.”

“This is how a dictator behaves, ignoring the interests of the Turkish people and businessmen and disregarding international trade agreements,” Israeli Foreign Minister Israel Katz said. posted on X Thursday.

According to official data, trade between Turkey and Israel was worth $7 billion last year. Israel was among the top 20 destinations for Turkish exports, purchasing goods and services worth $5.4 billion. According to Reuters, Turkey’s main exports to Israel are steel, vehicles, plastics, electrical appliances and machinery.

Read more here.

Monday: Earnings from Palantir Technologies, Tyson Foods and Marriott Worldwide Vacations. New York Fed President John Williams delivers remarks.

Tuesday: Earnings from Disney, BP, UBS, Duke Energy, McKesson, Suncor Energy, Celsius, Reddit, Lyft, Dutch Bros, Squarespace and TripAdvisor. Minneapolis Fed President Neel Kashkari delivers remarks.

Wednesday: Earnings from Toyota, Uber, Anheuser-Busch InBev, Airbnb, Shopify, Fox Corporation, News Corporation, Duolingo, Icahn Enterprises, New York Times Company, Sunoco, Valvoline, The Cheesecake Factory, Compass, AMC Entertainment and Beyond Meat. China’s customs agency reports on the country’s trade surplus in April. Fed Governor Lisa Cook delivers remarks.

Thursday: Revenue from Honda, Warner Bros Discovery, Warner Music Group, Hyatt Hotels, Tapestry, Dillard’s, H&R Block, Planet Fitness, Hilton Grand Vacations, Sweetgreen, Krispy Kreme, Six Flags and Papa John’s. The Bank of England announces its latest interest rate decision. The U.S. Department of Labor reports the number of new claims for unemployment benefits for the week ending May 4.

Friday: The British Office for National Statistics publishes figures for the first quarter of gross domestic product. The University of Michigan will publish its preliminary reading of consumer confidence in May. Chicago Fed President Austan Goolsbee delivers remarks. China’s National Bureau of Statistics releases inflation data for May.