Long-Term Consensus Declines

As the G-7 and Western European economies traverse 2016, a volatile and uncertain global outlook is weighing on 6- 10 year expectations for GDP growth. Long-term growth potential has shifted downward for all, especially compared with the highs seen at the beginning of the last decade. Although the G-7 has managed to finally extricate itself from the 2009 financial and economic recession, the pace of activity has not rebounded to pre-crisis standards. This year, the Western economies are facing headwinds stemming from the ongoing retrenchment in commodity and oil prices – the US, Canadian and Norwegian energy sectors have been especially hard-hit. China’s downturn has also undermined global trade fundamentals. With few countries growing at a robust rate, the question becomes: from where can growth now be generated? Added to which, the G-7 and Western European economies are also facing deflationary pressures stemming from softer global demand and weak raw material prices. Japan struggled with a deflationary spiral and liquidity trap throughout the 1990s and 2000s, and many Western policymakers would like to prevent a repeat of those worrying conditions. Hence the ECB’s unprecedented expansion of its quantitative easing program on March 10 in a bid to spur credit lending and help lift consumer prices which have been on a falling trajectory.

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