PIIE Experts Forecast Subdued Growth for the Global Economy in 2016–17

September 29, 2016

Contact: Eitan Urkowitz 202.454.1334                                                                                 

Washington, DC—The world economy is projected to experience continued subdued growth in 2016–17, according to economists at the Peterson Institute for International Economics (PIIE). Growth in the advanced economies will take up slack in labor markets but not enough to spur any material increase in inflation. A few significant emerging-market economies will start expanding modestly amid signs that recessions they have experienced in recent years may be ending. That said, concerns about political developments, and even radicalization, in the United States and Europe are a greater source of uncertainty than usual for the economic forecast. PIIE economists believe that one result would be more widespread fiscal expansion in the European Union and the United States, but only the US Federal Reserve would react to tighten.

These assessments will be presented in PIIE’s semiannual Global Economic Prospects program, which will be webcast live at 12:15 pm (ET) on Thursday, September 29. David J. Stockton will lead off the discussion with his global forecast, which builds on a detailed assessment of the US economy—both its cyclical performance and its longer-term growth potential. Adam S. Posen will then discuss the implications of election outcomes in the United States for fiscal and monetary policies and consider the possibility of a swing in Congress reinforcing presidential initiatives. Rory MacFarquhar will discuss the future of US-China relations and the positions of the US presidential candidates as they affect cooperation between the two countries. Finally, Jacob Funk Kirkegaard will assess the implications of post-Brexit political and economic developments in Europe for the economic outlook there.

Among the advanced economies, the Brexit vote will put a serious dent in growth of the UK economy but not tip it into recession, according to Stockton. For the United States, the euro area, and Japan, Stockton forecasts continued modest expansion at a similar pace experienced in the past year or so. In the United States, he predicts that the Federal Reserve will remain on its slow path of normalizing monetary policy. He argues that enough slack remains in labor markets to accommodate another couple of years of above-trend growth without pushing inflation above the Fed’s 2 percent objective.

Posen argues that the current US macroeconomic policy mix of loose money and neutral fiscal policy could well reverse, depending upon the outcome of the presidential and congressional elections this November. He considers a possible repeat of the 1980s, at faster speed.  Regarding US-China relations, MacFarquhar notes that disagreements have shifted from currency valuations and trade and investment barriers to concerns about cyber theft and the threat that China’s economic slowdown poses to the world economy. Kirkegaard concludes that the Brexit vote will not greatly damage the UK economy in the short run but that the longer-run implications are likely to be more severe.  The rise of nationalist parties across Europe, at the same time, could spur demands for greater fiscal expansion, he notes. 

About the Presenters

David J. Stockton is senior fellow at the Peterson Institute for International Economics and also chief economist at LH Meyer. He was previously senior adviser at Macroeconomic Advisers, LLC.

Adam S. Posen is the president of the Peterson Institute for International Economics. He was member of the Monetary Policy Committee of the Bank of England from 2009 to 2012.

Rory MacFarquhar is visiting fellow at the Peterson Institute for International Economics. He was senior director for global economics and finance in the White House National Security Council and National Economic Council.

Jacob Funk Kirkegaard is senior fellow at the Peterson Institute for International Economics. Before joining the Institute, he worked with the Danish Ministry of Defense, the United Nations in Iraq, and in the private financial sector.

ABOUT THE INSTITUTE

The Peterson Institute for International Economics is a private, nonprofit institution for rigorous, intellectually open, and indepth study and discussion of international economic policy. Its purpose is to identify and analyze important issues to make globalization beneficial and sustainable for the people of the United States and the world, and then to develop and communicate practical new approaches for dealing with them. The Institute is widely viewed as nonpartisan. Its work is funded by a highly diverse group of philanthropic foundations, private corporations, and interested individuals, as well as income on its capital fund. About 35 percent of the Institute’s resources in its latest fiscal year were provided by contributors from outside the United States. View a list of all financial supporters for the preceding six years.

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