Welcome to ‘The Tepid Twenties’? US economic strength will not be enough to boost global growth

Welcome to ‘The Tepid Twenties’? US economic strength will not be enough to boost global growth

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

“Without a course correction, we are indeed headed for the ‘Tepid Twenties’ – a sluggish and disappointing decade,” Kristalina Georgieva, managing director of the International Monetary Fund, warned a few weeks ago.

Lackluster performance in Europe and lukewarm growth in China (despite strong first-quarter data) are partly to blame. The good news is that despite major economic headwinds in recent years such as geopolitical conflicts and high interest rates, a global recession has not occurred. The bad news is that weak growth will leave many people feeling poorer.

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

Invigorating growth is important: When the economy grows, it raises living standards, encourages innovation and makes households richer. That reality is slowly disappearing for the 20-nation euro zone, where growth is flat. There are fears, at the moment, of an outright contraction if the European Central Bank does not cut interest rates soon.

Things are not getting any better in China. Last year, the world’s second-largest economy grew at its weakest pace in decades, hampered by high youth unemployment and a sagging real estate sector. (First-quarter GDP figures suggest a recovery may have begun earlier this year.)

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

Several countries, including the US and some in the eurozone, benefit from an expanding labor force in 2023, with immigration playing a key role, in addition to the “strong macroeconomic base built over the past few years,” Georgieva said. Economic growth in Spain and France was stronger than expected last year.

But the US outperformed mainly for one key reason: Robust productivity growth.

US labor productivity, which essentially shows the efficiency of workers in producing goods and services, jumped in 2023 after declining the previous year.

It remains to be seen whether that momentum will continue or not. Productivity growth came in well below expectations in the first three months of the year, according to Labor Department data released last week. That worker efficiency has become a unique obstacle to the United States, economists say.

“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 spending in recent years, boosted by a strong job market and enhanced savings during the pandemic. Although the American economy is not running at the same hot pace as it was in 2021, US consumers continue to spend at a strong clip, further driving growth. Consumer spending accounts for about two-thirds of US economic output.

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

Another key difference favoring the US economy compared to the eurozone is the country’s energy sector, Gallagher said. Unlike the eurozone, the US does not rely heavily on imports for its energy supply. Europeans pay far more for energy than Americans, and it becomes more expensive when geopolitical conflicts threaten supplies, such as the ongoing Russia-Ukraine war and simmering tensions in the Middle East.

“Course correction” is not a stronger US economy: Economic policymakers around the world need to address a range of key issues.

“At this point, policy makers face a choice. They can avoid making difficult decisions and try to struggle with poor policies or they can make other choices,” said Georgieva. “They can … choose good policies: tackle inflation and debt firmly; and promote economic transformation to increase productivity, inclusion and sustainable growth.”

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

Turkey halts trade with Israel because of the Gaza war
Turkey has stopped all import and export transactions with Israel in protest against the war in Gaza, my colleagues Hande Atay Alam and Olesya Dmitracova reported.

“All import and export transactions related to Israel, including all products, have been stopped,” Turkey’s trade ministry said in a statement Thursday. “Turkey will implement these new measures firmly and decisively until the Israeli government allows an adequate and uninterrupted flow of humanitarian aid to Gaza.”

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

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

Turkish-Israeli trade was worth $7 billion last year, according to official data. Israel is among the top 20 destinations for Turkish exports, buying $5.4 billion worth of goods and services. According to Reuters, Turkey’s main exports to Israel are steel, vehicles, plastics, electrical devices and machinery.

Read more here.

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

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

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

Thursday: Earnings 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 announced its latest interest rate decision. The US Department of Labor reported the number of new applications for unemployment benefits in the week ending May 4.

Friday: The United Kingdom’s Office for National Statistics released first-quarter figures on gross domestic product. The University of Michigan released its preliminary reading of consumer sentiment in May. Chicago Fed President Austan Goolsbee delivers remarks. China’s National Bureau of Statistics released May inflation data.

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