Macro Factors and Their Impact on Monetary Policy, the Economy, and Financial Markets

Long Term Growth Outlook for Global Economy Dims

In October the International Monetary Fund (IMF) lowered its 2019 GDP forecast to 3.0% from 3.2% in July. This represents a marked slowing from global growth of 3.8% in 2017. The primary driver of the slowdown has been a retrenchment in global trade and business investment in response to the ratcheting up of trade tariffs since early 2018. Global trade has been a significant engine for the global economy for the past 70 years rising from just 5% of global GDP to almost 25%. This trend was supported by a decline in global trade tariffs and trade agreements that opened up individual country’s economies to the global economy. The rising tide of trade ushered in a period of competitiveness that resulted in lower inflation and access to products from around the world for consumers. The surge in global competitiveness pushed companies in advanced economies to lower their cost of production and shift production outside their domestic economy to take advantage of cheap labor. In advanced economies the migration of production resulted in the loss of millions of middle class jobs, even as the increase in globalization lifted hundreds of millions of workers in Asia and elsewhere out of extreme poverty. For those adversely impacted as factories closed and jobs were lost in advanced economies, the reduction in extreme poverty is an abstraction that had and continues to have little meaning.

The United Nations defined extreme poverty in its 1995 report for the World Summit for Social Development. “Extreme poverty is a condition characterized by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information. It depends not only on income but also on access to services.” According to estimates by the United Nations there were 1.9 billion people living in extreme poverty in 1990, 1.2 billion in 2008, and 734 million in 2015. As the number of those living in extreme poverty plunged, global population grew from 5.327 billion in 1990 to 7.379 billion in 2015. Between 1990 and 2015 the percent of global population living in extreme poverty fell by 72%, declining to 9.95% from 35.6% in 1990. The number of those not living in extreme poverty has soared due to population growth and the decline in extreme poverty. Nothing like this has ever occurred in human history and the increase in global trade and globalization played a significant role in making it happen.