World may be headed for Great Stagnation

China’s economy is getting worse
CNN screenshot

For all the chatter about a looming recession in the United States or Europe, it’s important to remember: right now, forecasters don’t expect the global economy to contract.

Instead, we’re looking at a slowdown — and there are signs it could last longer than many economists initially anticipated. The question on my mind recently: Is the successor to the Great Recession the Great Stagnation?

That’s certainly the warning embedded in the new economic outlook from the Organization for Economic Cooperation and Development. The group now forecasts that global GDP growth will sit at 2.9% in both 2019 and 2020, the lowest annual rate of growth since the financial crisis. It’s expected to tick up just 0.1 percentage points in 2021.

The OECD said it does not see this sluggishness as the result of one-off circumstances.

From OECD chief economist Laurence Boone: “It would be a mistake to consider these changes as temporary factors that can be addressed with monetary or fiscal policy: they are structural. Without coordination for trade and global taxation, clear policy directions for the energy transition, uncertainty will continue to loom large and damage growth prospects.”

In the United States, growth is forecast to slow from 2.3% in 2019 to 2% in 2020 and 2021. China is expected to post 6.2% growth this year before it drops off to 5.7% and then 5.5%.

In a sentence: “The global outlook is fragile, with increasing signs that the cyclical downturn is becoming entrenched,” the OECD wrote.

Ray Dalio is beating the same drum. The billionaire hedge fund founder told CNN Business this week that he believes the world is dealing with financial challenges on a scale not seen since the 1930s. He doesn’t want to use the word “recession.” But he does think the global economy is headed for what he dubbed the “Great Sag.”

Some Wall Street players are more optimistic. Goldman Sachs sees the drag from trade tensions evaporating next year, and thinks global GDP growth will rise from 3.1% in 2019 to 3.4% in 2020 and 3.6% in 2021. But the investment bank still thinks the “swing in the pendulum” will “remain quite gradual.”