The global economy is slowing, and political problems are as much to blame as economic ones. No region is immune from these concerns and the impact of uncertainty is growing. Not only are particular problems large enough to create global ripples, but their political origins mean that governments will be hobbled when they try to counter their effects. As the need for political decision making rises, the capacity of policymakers to deliver will diminish.
Every spring, world business and economic leaders converge on Washington to discuss the state of the economy in meetings at the International Monetary Fund and the World Bank. In the runup to those conclaves, the IMF publishes its World Economic Outlook. The latest analysis forecasts global economic growth of 3.2 percent in 2016, a drop from the 3.4 percent predicted in January and the fourth consecutive cut over the last year. Looking to 2017, the IMF anticipates global growth of 3.5 percent, down 0.1 percentage point from the January estimate.
China's economic slowdown is the largest shadow over the global economy. Chinese policymakers and economic managers have rightfully concluded that their breakneck, double-digit growth is unsustainable, both in human, environmental and economic terms. The economy must slow as the country makes a "momentous" transition to a more domestically oriented model of consumption. Unfortunately, diminishing demand for the raw materials that have fueled Chinese export production has hit other countries especially hard. Fortunately, Beijing has anticipated some of the domestic impact of the slowdown and provided additional domestic stimulus; as a result the IMF forecast for Chinese growth actually increased from 6.3 to 6.5 percent this year and to 6.2 percent next year. Longer term, however, Chinese growth will weaken.