It is becoming increasingly clear that the world economy has entered a slowdown. Industrial production has stagnated in large parts of the world and sentiment is falling. Growth in world trade has fallen significantly and the first half of this year saw zero growth. The heightened trade conflict between the US and China, which is beginning to threaten the flow of materials in the manufacturing industry, is a strong contributing factor to the sharp slowdown in the world economy.
Growth in the global economy is slowing to around 3 per cent both this year and next year. While this does not represent a complete collapse, the growth rate is well below the historical average of 3.7 per cent for the period 2000–2018. It is the weakest figure in a decade. In fact, the global economy has only grown at a slower rate on two previous occasions since 2000; the first in connection with the burst of the IT bubble in 2001 and the second in connection with the financial crisis of 2008. So history tells us that the situation can change quickly and growth can fall rapidly.
The European economy is developing poorly with industrial activity cooling off sharply. The fact that the German economy is weakening more and more, going from being the growth engine of Europe to being a sinker in the region, is deeply worrying. This is true not least for Sweden and Swedish companies as three quarters of Swedish exports go to Europe. Growth is also slowing in large parts of Asia, as well as in North America where there are now clear signs of weakness.
A weaker global economy coupled with trade conflict is hitting Swedish exports hard. However, service exports are expected to increase a little faster as a result of increased demand as well as the upgrade to 5G technology in other countries which benefits sections of Swedish industry. Overall, Swedish exports are expected to increase by 3.1 per cent this year and 1.8 per cent next year. This is significantly lower than the historical average of 4 percent during the period 2000-2018.
The global slowdown, together with trade conflict and low inflation, have led central banks around the world to change their stance and the low interest rate environment can be expected to remain in place for quite some time to come. The extremely low, and in some cases negative, policy rates means that the central banks’ possibilities to stimulate the economy are likely to be limited. This means that fiscal policy will play a more important role when it comes to counteracting the current economic downturn.
At the same time there is no shortage of long term challenges. The issue of sustainability has risen to the top of the agenda among companies as well as consumers in large parts of the world. In the US, too, there are signs that conditions are changing for the economy and for business, which will potentially impact the rest of the world. In a break with 50 years of tradition, the message from Business Roundtable, the American association of CEOs, is that companies should also invest in their employees, protect the environment and exercise positive business ethics towards their suppliers. Let us hope this is the beginning of a globally sustainable economic development!
About the analysis
Business Sweden’s semi-annual global economic outlook including a review of current developments in important Swedish export markets as well as forecasts for Swedish exports and country and regional economic growth.
The outlook includes a review of recent developments in the Swedish economy, but its main focus is the macroeconomic performance of the three key regions for Swedish exports: Europe, Asia and North America. Major Swedish export markets like Germany, the US and China are thoroughly analysed. An appendix provides the most recent hard data for 34 markets.