World Economy to Experience Slowing Growth, IMF Report Says


Many Americans tend to think of the Great Recession as a uniquely American experience. However, it had repercussions on economies around the world and led to a global financial crisis. The crisis is subsiding on a global level, just as it is in America, but some are still feeling its effects.  Some economies face diminished GDP growth expectations and poorer nations may be disproportionately affected, a recent report indicates.

As reported by the Economist, while many economies of the world appear to be heading on an upward trajectory, a recent, sharp, short-term decline in some GDPs has led to reduced expectations of financial growth. While this may be bleak for richer, industrialized nations, the latest "World Economic Outlook" from the International Monetary Fund (IMF) indicates that emerging economies are also entering an age of diminished growth, and they may have a much harder time crawling back out of the hole.

"Potential output" is an estimate of an economy's financial growth potential before inflation rises too quickly to make the growth beneficial to that nation's economy. Growth in the labor force, available business capital, and productivity all help to determine potential output.

The IMF had already warned that potential growth in advanced economies was on the decline in the years before the global financial crisis. This shrinking potential was thanks to weak productivity growth and aging workers among wealthy, industrialized nation. The global financial crisis then narrowed investments, enhancing these issues, and causing potential output to shrink from an average of 2.2% between 2001-2007 to just 1.5% in 2013 and 2014.

While the IMF believes potential output should grow for wealthy nations in the coming years, it is more concerned about less powerful economies. Emerging economies have been dealing with a more persistent slowdown for a number of years. These nations are beginning to face aging workforces of their own, as well as a mass exodus of highly educated employees to wealthier nations with better standards of living.

In addition, the impact of the financial crisis has been more devastating to those economies that had a thinner margin on which to fall back. The result: diminished financial expectations are spreading around the globe.  While wealthier nations have a more promising opportunity to rebound over the next few years, the poorer nations of the world will lag behind for many more years.