Global Economy Watch

Each month PwC's Macroeconomics team presents the Global Economy Watch, a short publication that looks at the trends and issues that are affecting the global economy and details our latest economic projections for the leading economies of the world.

A turnaround for G7

In April, policymakers will gather in Washington D.C. for the World Bank-IMF Spring meeting. Part of their discussions will focus on the recent uptick in economic activity in the leading (G7) advanced economies.

In this edition, we have looked at whether the recent optimism about the G7 is justified and, more importantly, whether it can be sustained.

On the first point, “hard” data indicate a slight acceleration in G7 economic growth to 1.7% year-on-year in the last quarter of 2016 (see Figure 1). However, what is driving the optimism is the broad-based nature of the recovery across the G7, as indicated by less variation in growth rates across countries than at any time in the past 20 years (see Figure 4). 

We think three reasons explain this turnaround.

First, the continued highly accommodative monetary stance across the G7 and, in particular, in the Eurozone, despite the gradual rise in US rates from historic lows recently.

Second, governments are starting to spend more, with some putting infrastructure plans in place.

Third, there has been an uptick in demand from the large (E7) emerging markets, partly driven by a fiscal stimulus in China, as well as a turnaround in economic activity in Brazil. This is corroborated by recent trade data, which show that emerging markets’ import growth continued to grow compared to a year earlier.

So, will this continue in the future?

Most “soft” survey-based data suggest the momentum has carried on through the first quarter of this year. We will not know this for sure until the “hard” data on GDP is released later in this month, starting with the US and UK on April 28th.

Even so, policymakers’ discussions should focus on the key factor which determines long-run standards of living: productivity. Our analysis shows that post-crisis productivity growth in the G7 has been around two thirds slower than its long-run average rate.

Typically, governments take on the task to push through economy-wide reforms. For example, they can help drive large public investment projects or invest more in schooling. They can also help drive a more open trade agenda which, however, seems less likely in the current climate.

But we think that businesses also have an important role to play, particularly from a bottom-up perspective. Best practice management techniques, for example, could have an impact on national productivity rates if implemented across a large number of businesses.

So, will this continue in the future?

Most “soft” survey-based data suggest the momentum has carried on through the first quarter of this year. We will not know this for sure until the “hard” data on GDP is released later in this month, starting with the US and UK on April 28th.

Even so, policymakers’ discussions should focus on the key factor which determines long-run standards of living: productivity. Our analysis shows that post-crisis productivity growth in the G7 has been around two thirds slower than its long-run average rate.

Typically, governments take on the task to push through economy-wide reforms. For example, they can help drive large public investment projects or invest more in schooling. They can also help drive a more open trade agenda which, however, seems less likely in the current climate.

But we think that businesses also have an important role to play, particularly from a bottom-up perspective. Best practice management techniques, for example, could have an impact on national productivity rates if implemented across a large number of businesses.

Monthly editions

A turnround for the G7?

A turnaround for the G7? This month’s GEW explores the reasons behind the recent uptick in economic activity of the G7 economies and analyses whether this trend will continue in the future. It highlights the importance of productivity growth for long-term growth and discusses how to revive productivity in the G7. It also discusses the business implications of a more protectionist US, in light of President Trump’s campaign pledges for a border tax and tariffs.

Contact us

Barret Kupelian
Senior Economist
Tel: +44 (0)20 7213 1579
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