The US-China trade war and Brexit don’t help, but behind sluggish global growth lies political gridlock

Income inequality, an ageing workforce and a focus on creating short-term value for shareholders are some of the reasons for the global growth slowdown

Behind all of these is a deadlocked political process in advanced economies that prevents investment in much-needed infrastructure that could spur growth

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US President Donald Trump debates with House Minority Leader Nancy Pelosi and Senate Minority Leader Chuck Schumer as US Vice-President Mike Pence listens during a meeting in the Oval Office of the White House in Washington on December 11, 2018. The failure of negotiations between the Republican president and Democrats resulted in the longest US government shutdown in history. Photo: Washington Post

David Dapice is the economist of the Vietnam and Myanmar Programme at Harvard University’s Kennedy School of Government.

Published: 1:00am, 28 Nov 2019Updated: 6:41am, 28 Nov 2019

The US economy ended 2018 with a whimper and a 1.1 per cent annual rate of gross domestic product growth, and then started the first quarter of 2019 with a bang – 3.1 per cent growth. The economy has since settled back to 2 per cent or less, where it seems likely to linger unless major shocks occur.

The world economy is slowing, too, but fears of an escalation in China-US trade tensions or a very disorderly Brexit have eased. Three cuts in interest rates by the US Federal Reserve, along with large liquidity injections to prevent disorderly short-term money markets, have helped keep the economy turning over, if not humming.

Consumers keep spending, but business investment is sluggish. Monetary authorities have eased about as much as they can. Short and long interest rates in the United States are now zero in real terms – adjusted to remove the effects of inflation and reflect real borrowing costs and yield – and negative in nominal terms in much of Europe and Japan.

A major question mark is China. It has not resorted to extremely expansionary credit growth or very large government deficits. Its economy is officially growing at about 6 per cent a year, but many outside experts suggest that the actual growth rate is 2 to 3 percentage points lower than that.