Despite the ravages of the COVID-19 pandemic—which is now in its second year, and becoming more virulent with new strains—The Economist and other forecasting bodies predict the world economic growth rate to average as high as 5.8% in the 2021 calendar year. This growth rate represents a huge bounce back from −3.6% in 2020, and is the highest in almost half a century (back to 1973).
The world economic growth rate may not quite reach this average, of course, as the impact of the Delta strain and other COVID-19 variants on some countries is affecting their growth. The chart below outlines several countries under pressure in the closing half of this year.
India and China, with their outlier growth rates of over 8%, are enduring continuing or renewed effects of the COVID-19 pandemic. Australia is unlikely to reach its 4.3% forecast, given multiple states’ repeated lockdowns are costing billions of dollars in lost output. Other factors such as trade wars, supply shortages and delays, and climate impacts (floods, bushfires, et al.) are contributing, too.
But 2021 is just a single year.
So, where is the world economy going through the 2020s compared with where it has been? The next chart points to an interesting direction.
The world economy of over 220 nations, principalities and protectorates is slowing from the heady post-WWII growth of around 5% per annum. By contrast, the world economy, including the fast-growing Asian megaregion, is likely to average growth of 2.5% p.a. to 2.75% p.a. in the 2020s. The United States and Australia are slowing from 5.0% p.a. in the 1950s and 1960s to 2.0% p.a. in this decade, as we see in the next two charts.
Population growth is slowing, too; but both nations will likely still struggle to average real GDP per capita growth of 1.0% p.a. in this decade. If this slower growth in our standard of living (SOL) continues through the whole of this century, Australia’s SOL will only increase threefold, compared with a fivefold increase in the 20th century (despite the nation having endured two World Wars and a dreadful Depression). We are not a nation in decline, just one that is susceptible to the boiling frog syndrome.
Why is the world—and particularly the West—slowing? There are many reasons:
- Relative world peace for some 75 years has reduced the need to rebuild or ‘catch up’ following wars, depressions and recessions (which none of us want to repeat);
- Well-off OECD countries are less hungry for growth than developing nations;
- Productivity in the post-industrial Infotronics Age of services and ICT is not matching the productivity growth of the Industrial Age;
- The new political dialectic of Rationalism versus Emotionalism (gut-feel) is seeing the latter take hold;
- Leadership across the world is at similar levels to the 1930s, with dictatorships, sabre-rattling, fascism, corruption, short-termism and incompetence becoming rife;
- Climate change demands that we enact preventative and alternative measures to avoid global catastrophes, which will slow economies for some decades.
Not all of the above factors are irreversible, and our SOL is still growing. The reforms required to address the above may not yet be evident, but they will require cooperation from truer, wiser and longer-horizon leadership than we currently have. The world—and Australia—has a lot of soul searching to do.
