PwC's Macroeconomics team presents 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 world's leading economies.
Governing for growth in Africa
Our economic projections explained
There are more countries contained in Africa than in any other landmass on Earth. The continent’s geography, economics and politics is startlingly diverse, yet it is often discussed and analysed as a single entity, which rises or falls, succeeds or fails, as one. This reductive type of analysis does Africa a disservice. In our feature article for this edition we consider the variation in economic growth and performance in measures of governance among 53 African countries in recent years and consider the relationship between the two (see Figure 1). Our headline finding suggests that attainable improvements in governance could lead to a continent-wide increase in economic output worth around $23bn, but that this benefit would not be distributed equally.
In our second article, we explore the phenomenon of weak (or non-existent) global inflation. Policymakers, and central bankers in particular, have waged a multi-generational war on fast-rising prices, and, as our article shows, they appear to have been victorious. But low, controlled inflation can be desirable: most central banks in advanced economies target annual price increases of around 2%. Expectations of higher prices add momentum to an economy and encourage continued consumer spending and wage growth.
Following the global financial crisis and the unprecedented loosening of global monetary policy that was made in response, it was assumed that inflation would rise again once labour markets tightened up. But the US Federal Reserve appears to be nearing the end of its cycle of interest rate rises and inflation has remained consistently below target. We consider the potential reasons behind the failure of inflationary pressures to build and propose that changes to inflation targets might be an option worth considering.
Lastly, in our economic update, we look at the impact of the manufacturing sector on the global economy since mid-2018. Manufacturing indicators have fallen for several major economies, most likely as a consequence of the US-China trade war and the Chinese government’s attempts to reduce obsolete capacity in the economy. However, China’s stronger-than-expected growth in the first quarter of 2019 suggests that the government is again stimulating the economy to boost its short-term performance. The effects of this may flow outwards in the coming months, supporting the rest of the global economy, albeit without tackling China’s long-term structural issues.
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