The global economy is limping along according to the latest report released by the IMF entitled “Navigating Global Divergences.”
Growth will remain slow and uneven, with more advanced economies experiencing a more pronounced economic slowdown than emerging and developing economies, said the IMF report.
So, the dynamics are that the rich countries will experience a disproportionate economic slowdown compared with poor economies.
“Growth will remain slow and uneven, with more advanced economies experiencing a more pronounced economic slowdown than emerging and developing economies”
The global economy is limping, and the middle class in advanced economies is disappearing
Reading between the lines, the ongoing destruction of the middle class in developed economies will continue as a fledgling economy will force workers to accept lower wages with little or no security.
Meanwhile, as the global economic slowdown in poorer countries is less pronounced, wages stagnate and, in some cases, rise.
If the goal is to create a global wage rate, of impoverished disenfranchised workers with no rights, global neo-serfs, then, “Navigating Global Divergences” is music to the ears.
What is the impact on investors as the global economy is limping, as the slowdown becomes more pronounced in rich countries?
The declining disposable income of the middle class in advanced economies could accelerate the death of snob brands.
“as the global economic slowdown in poorer countries is less pronounced, wages stagnate and, in some cases, rise”
“It’s not just homes: Millennials have been reluctant to buy items such as cars, music and luxury goods. Instead, they’re turning to a new set of services that provide access to products without the burdens of ownership, giving rise to what is being called a sharing economy,” wrote Goldman Sachs.
So, in advanced economies, Millennials can’t afford to buy autos, but in developing economies, auto and motorbike sales are booming.
Indian vehicles grew to a staggering 21 million units from about 17 million in the year-ago period, led by an exceptional growth in the country’s passenger vehicles.
India’s Automotive Market was valued at USD 100 billion in 2021 and could reach USD 160 billion in 2027.
Vietnam, which aims to be a high-income country by 2045, auto sales were up 33.0% to 404,635 units in 2022.
It is more profitable for Automakers to invest and sell their products in developing countries because safety and environmental standards are less stringent than in developed economies.
Moreover, there is a large younger population, so market potential is significant.
“Rich countries are expected to barely grow, while poor countries could keep growing” – Win Investing
The IMF is warning that the global economy is limping along
Global growth could slow from 3.5 per cent in 2022 to 3 per cent in 2023, according to the IMF Navigating Global Divergences report released during the 2023 World Bank-IMF Annual Meetings in Marrakesh, Morocco.
Limping global economy along with growth expected in 2024
The IMF projected a 2.9 per cent growth for 2024, downgrading its previous estimate of a 3 per cent growth in July due to a slower-than-expected recovery from the impact of the COVID-19 pandemic and Russia’s war against Ukraine.
The takeaway is that growth will be slow and uneven with growing global divergences
Rich countries are expected to barely grow, while poor countries could keep growing.
Advanced economies’ expected slowdown is from 2.6 per cent in 2022 to 1.5 per cent in 2023 and 1.4 per cent in 2024, amid stronger-than-expected momentum of the United States but weaker-than-expected growth in the euro area.
Emerging markets and developing economies are forecasted to see a modest decline in growth rate from 4.1 per cent in 2022 to 4 per cent in both 2023 and 2024, with a downward revision of 0.1 percentage point in 2024.
The global economy is limping along, but it could also stumble with deteriorating geopolitics
The IMF warned that the intensification of geoeconomic fragmentation will not only mean high costs for global prosperity but also hamper multilateral cooperation in providing crucial public goods, such as fighting climate change and future pandemics and ensuring energy and food security.
Regarding the Palestinian-Israeli conflict, IMF chief economist Pierre-Olivier Gourinchas said it is “too early” to assess its impact on global economic growth, and the IMF was “monitoring the situation closely”.
“We’ve seen that in previous crises and conflicts, and of course, this reflects the potential risk of disruption either in production or transport of oil in the region”, he warned.
“the global economy is limping along as it shoulders another burden, a potential worsening conflict in the Middle East, which would impact energy prices and inflation” – Win Investing
What is the macroeconomic data to support the view that the global economy is limping along?
Global economic activity fell at the end of the third quarter of 2023 with an eighth consecutive decline in the S AND P Global composite PMI. The declining global PMI indicates a slowdown in the world economy flagged by the index close to the 50-point threshold separating the expansion zone from the contraction zone (50.5 compared to 50.6 in August). While the manufacturing PMI picked up slightly to 49.1 (compared to 49.0 in August). But this still indicates a contraction, as the services PMI continued to deteriorate for the eighth month.
Moreover, in the services sector, out of the 16 countries for which September data are available, 10 reported a decline in the index compared to the previous month. The declines are the greatest in Russia, Brazil, France and, to a lesser extent, the US, the UK, and Ireland. In China, the index has reached its lowest level since December 2022 when the country lifted its lockdown restrictions. Germany is the anomaly with its service sector survey in September rising by three points, and returning to the expansion zone (50.3 compared to 47.3 in August).
The Spanish index also returned to the expansion zone (50.5 compared to 49.3 in August).
The manufacturing PMI index shows the global economy limping along
Only thirteen of the 31 countries surveyed reported increases in the manufacturing PMI.
Germany’s PMI improved but is still far from the 50 mark.
Is the war economy preventing manufacturing PMI from collapsing?
PMI fell in the Netherlands, Greece, and France (the lowest level since May 2020) and, to a lesser extent, in the euro area. In China, the index fell slightly after its August rebound but remains in the expansion zone.
So, the global economy is limping along as it shoulders another burden, a potential worsening conflict in the Middle East, which would impact energy prices and inflation.