Global economic growth remains weak with many forecasts being revised downward. While talk of recession is overdone, growth of around 2.5-3.0% may be the new normal. Government leadership is lacking and central banks have limited policy tools remaining. The US economy has strengthened but China's transition to more sustainable growth has stalled. Monetary policy still has room for easing in some emerging markets.

1. Global growth – Down but not out
While equity and commodity markets have recovered, it is an almost consensus view that
already tepid global economic growth in H2 2015 likely weakened furthered in Q3 and
shows few signs of recovering near-term,
Governments, lacking in both leadership and fiscal-reflation headroom, have passed the
buck to central banks struggling to hit multiple growth, inflation and financial stability
targets.
However, talk of global recession let alone economic collapse is somewhat overdone and I
reiterate my long-held view that the global growth story is a cause for concern, not panic
(17 December 2014).
Global GDP growth has been mediocre but pretty stable in the past three years at around
2.4 and 3.2%, according to respectively World Bank and IMF estimates, so perhaps it is the
expectation of a return to pre-2008 growth rates which is unfounded.
International institutions have revised down their global GDP growth forecasts for 2015 but
history suggests that the IMF’s 2015 forecast of 3.1% growth may prove a tad too
pessimistic.
The focus on China’s ill-defined “hard-landing” and “true” growth rate has obscured the
fact that growth in US, still the world’s largest economy, is back to its long-term average.
Finally, while policy-makers are running out of tools to spur their economies, a number of
emerging market central banks, including in China and India, still have room to cut policy
rates further.
First the bad news
Governments in the US, Eurozone and Japan are struggling to deliver on the structural reforms necessary
to address challenging demographics and low productivity growth and are either unwilling or unable to
fiscally reflate their indebted economies.
Lower global commodity prices have eroded global spending and investment as net energy importers’
propensity to spend this commodity-price windfall is smaller than net commodity exporters’ propensity to
spend the spoils from high prices.
Emerging markets are facing the potentially self-reinforcing triple whammy of collapsing international trade,
capital outflows and a stronger US dollar. Where central banks’ real policy rates are already low and
currencies are under duress (South Africa, Russia, Mexico), policy-makers are likely to remain in a bind.
China’s transition from over-investment to higher value-added exports and consumption driven growth has
stalled, with markets struggling to quantify the damage to Chinese corporates and banks.
A lack of leadership lies at the heart of the problem:

2.  In the US President Obama is nearing the end of an often impotent presidency, with politicians
increasingly focussed on elections and the rag-tag list of presidential candidates.
 Eurozone leaders, bogged down by the reputation-sapping Greece fiasco, are now in disunity over
how to get to grips with the mounting emigration and refugee crisis. German Chancellor Merkel,
regarded as the eurozone’s “safe pair of hands”, is facing up to falling popular support, splits within
her coalition government, tepid German growth and a growing list of corporate scandals.
 In the UK, Prime Minister Cameron, fresh out of national elections, is engaged in a bruising
domestic and European battle to reform the EU ahead of a possible UK in-out referendum in 2017
while the media obsesses with the recent election of Jeremy Corbyn as opposition leader.
 In China the plethora of policies introduced to stabilise falling economic growth and volatile capital
markets has struggled to gain traction or backfired in the case of the token renminbi devaluation.
 In Russia, the collapse in oil prices and Crimea’s annexation have severely weakened the economy
and President Putin’s credibility.
 In a number of large emerging markets, including Brazil and Malaysia, allegations of financial
impropriety are rocking leaderships.
 In Australia, the fifth prime minister in five years was recently appointed – hardly the pre-condition
for sound long-term economic planning.
Governments have resorted to passing the buck to central banks which are ill-suited to hitting multiple
targets of inflation, growth and financial stability and quickly running out of hard-hitting policy ammunition.
 This policy dilemma is particularly acute at the US Federal Reserve, with mixed US data (including
weak September non-farm payrolls) nullifying Chairperson Yellen’s call for a pre year-end rate hike.
 Bank of England Governor Carney was forced into a number of u-turns last year following
unexpectedly strong labour market data.
 Eurozone inflation and employment are still stuck in the doldrums and the question is seemingly
less whether but when the European Central Bank (ECB) will expand and/or extend its current QE
program. My concern that the ECB’s quantitative easing was a little late to the party is unfortunately
proving justified.
Growth – The new normal?
Nevertheless, talk of global recession let alone economic collapse is somewhat overdone. Figure 1 shows
that for the past three years global GDP growth has actually pretty stable.
 According to the World Bank, which uses market exchange rates to estimate countries’ relative
weights in global GDP, global real GDP growth has hovered around 2.4%, only marginally below the

3. prior 15-year average of 2.9%. Admittedly GDP growth in H1 2015 of 2.5% year-on-year was 0.7
percentage points lower than the average growth recorded between 1997 and 2008.
 According to the IMF, which uses Purchasing Power Parity (PPP) to estimate countries’ relative
weights in global GDP, real GDP growth has hovered around 3.2%, one percentage point below the
prior 15-year average. The IMF does not publish quarterly global growth numbers, which I therefore
estimate using IMF PPP weights and country GDP growth rates.
 The gap between the World Bank and IMF measures of global GDP growth is mainly due to the
higher weight that the IMF ascribes to China which was growing very quickly. Conversely, the recent
slowdown in China’s growth has had a bigger (negative) impact on the IMF’s measure of global
growth. As a result the gap between the World Bank and IMF measures of global growth has
narrowed in recent years.
It is the expectation that policy-makers somehow can and should engineer growth back to the pre financial
crisis levels that is perhaps misguided. Put differently, global growth around 2.5-3.0% may well the new
normal, rather than the long-term 3.5% average let alone the heady 4-6% growth occasionally recorded in
the late 1990s and mid-2000s.
Figure 1: Global GDP growth, down but not out Figure 2: US growth in line with pre-financial crisis
Source: World Bank Global Economic Monitor, IMF,
www.olivierdesbarres.co.uk
Note: IMF measure is estimate using 2011 PPP weights
Source: OECD, www.olivierdesbarres.co.uk
Note: dotted line is 20-year average
Growth outlook not rosy but short of calamitous
While most Q3 GDP data will not be released for a few more weeks (see Figure 8), the list of indicators
pointing to a slowdown in growth from Q2 is long and distinguished. In particular, the global manufacturing
Purchasing Managers Index (PMI), which correlates reasonably well with global GDP growth, suggests that
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0
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1997-Q1 2001-Q2 2005-Q3 2009-Q4 2014-Q1
IMF (estimate) World Bank
Global real GDP, % year-on-year
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0
2
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1996Q4 2001Q4 2006Q4 2011Q4
US real GDP
quarter-on-quarter seasonally adjusted rate, %

4. the World Bank’s measure of GDP growth slowed to around 2.4% yoy in Q3 (see Figure 3) while the IMF’s
measure of growth slowed to 3.0% yoy (see Figure 4).
Figures 3 & 4: Global PMI points to further growth slowdown in Q3
Source: JP Morgan-Markit¸ WorldBank, IMF
Note: Dashed lines are www.olivierdesbarres.co.uk forecasts
Unsurprisingly, the IMF and other financial institutions have had to further revise downwards their once-
again overly optimistic annual forecasts (see Figure 5). Specifically, in its October World Economic Outlook,
the IMF revised its global GDP growth forecasts for 2015 and 2016 to 3.1% and 3.6%, respectively, from
the 3.3% and 3.8% forecasts made in its July World Economic Outlook. The OECD made similar downward
revisions in its September Economic Outlook, as did the National Institute of Economic and Social
Research in August and the World Bank in June.
Note, however, that in the previous five years the IMF’s World Economic Outlook October forecasts for
global GDP growth that year have systematically under-estimated actual growth by on average 0.3
percentage points (see Figure 6). For example, the IMF in its October 2010 Economic Outlook forecast
global GDP growth of 4.8% in 2010, compared to actual growth of 5.4%. If this pattern is replicated, the
IMF’s 2015 growth forecast of 3.1% may prove a tad too pessimistic, with actual growth closer to the 2012-
2014 average of just under 3.4%.
1.5
1.9
2.3
2.7
3.1
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49
50
51
52
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54
2012Q4 2013Q3 2014Q2 2015Q1
Global manufacturing PMI, left scale
Global real GDP, % year-on-year
(World Bank)
2.5
2.9
3.3
3.7
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49
50
51
52
53
54
2012Q4 2013Q3 2014Q2 2015Q1
Global manufacturing PMI, left scale
Global real GDP, % year-on-year
(IMF)

5. Figure 5: Global growth forecasts revised
down…again
Figure 6: IMF’s October forecasts have historically
been a tad too bearish
Source: IMF World Economic Outlooks (October 2015
and July 2015),OECD Economic Outlook (September
2015 and June 2015),World Bank Global Economic
Prospects (Jun 2015 and January 2015), National
Institute of Economic and Social Research Global
Economic Forecasts (August and May 2015).
Source: IMF World Economic Outlooks,
www.olivierdesbarres.co.uk
Chinese “hard-landing” – Over-used and ill-defined hyperbole
A Google search of “China hard landing” throws up 5.8 million results and yet a clear definition of what
constitutes a Chinese hard landing or how to measure it remains elusive. That is not to deny that Chinese
growth has slowed sharply in recent years but it is odd that so few, if any, attempts have been made to
define the parameters of a hard landing and therefore whether Chinese policy responses are appropriate.
Ultimately it is a subjective assessment. Australian mining companies would clearly qualify China’s growth
slowdown and associated collapse in the price of commodities such as coal and iron ore as a hard landing.
But other export-driven economies such as Germany have fared far better, with German exports rising on
average 0.3% per month in the four years to July 2015 (see Figure 7). If the 5% collapse in the euro-value
of exports in August proves not to be a one-off, this could be evidence that China’s hard landing is being
more widely felt.
Pace of change matters more than “true” Chinese growth rate
Furthermore, there has been much debate about the “true” rate of Chinese growth being closer to 4-5%.
But to the extent that the Chinese economy is at the heart of the global economy, growth in the rest of the
world and commodity prices – which presumably are accurately reported – already reflect weak Chinese
growth.
2.0
2.5
3.0
3.5
4.0
2015 new 2015 old 2016 new 2016 old
IMF OECD
World Bank NIESR
Average
Global GDP growth forecasts, %
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
2010 2011 2012 2013 2014 2015f
Global GDP growth, %
IMF forecast in October of that year
Actual

6. Put differently, global growth and commodity prices are good indirect measures of Chinese growth and
would be stronger if China really was growing at 7%. What is arguably more relevant is the pace of the
Chinese growth slowdown, rather than the actual level of Chinese growth.
Figure 7: Resilient German exports collapsed in
August 2015
Figure 8: Q3 GDP data to provide true measure of
summer slowdown
Source: German Federal Statistical Office Source: Investing.com, Tradingeconomics.com
China and US (almost) equal partners in growth
The understandable fascination with slowing Chinese growth has perhaps distracted attention from the US
economy’s recovery and its growing contribution to global growth.
US GDP growth over the past five quarters has averaged 3.1% quarter-on-quarter annualised, in line with
the average growth rate in the twelve years preceding the great financial crisis (see Figure 2). With the US
accounting for about 23% of the world’s (nominal) GDP based on market exchange rates, US real GDP
growth since mid-2014 has accounted for about 28% of global growth (see Figure 9). This is still below
China’s contribution of 37% but in the preceding three years, the Chinese and US contributions to global
growth were, respectively, 48% and 14% (see Figure 10).
60
65
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75
80
85
90
95
100
105
110
Jan-07 Feb-09 Mar-11 Apr-13 May-15
German merchandise exports
Seasonally and work-day adjusted, EUR bn
Q3 GDP data release calendar
Date Country
Weight in
global GDP (%)
Analyst forecast
14-Oct Singapore 0.4 1.3 (% yoy)
19-Oct China 13.4
23-Oct Korea 1.8 2.3 (% yoy)
27-Oct UK 3.8 2.4 (% yoy)
29-Oct US 22.6 2.1 (% qoq saar)
30-Oct Taiwan 0.7
13-Nov Germany 5.0 1.4 (% yoy)
13-Nov Eurozone 17.3 1.6 (% yoy)
16-Nov Japan 5.9 2.3 (% qoq saar)
30-Nov India 2.6 7.1 (% yoy)

7. Figure 9: US economy doing more of the lifting Figure 10: China and US (almost) equal partners in
growth
Source: World Bank Global Economic Monitor, www.olivierdesbarres.co.uk;
Note: Calculated as (country’s nominal GDP / world nominal GDP) x (country’s real GDP growth / global realGDP growth).
Country weights are based on market exchange rates, not PPP. Total can exceed 100% as some countries would have
recorded negative growth.
Scope for monetary easing
In emerging markets, there is scope for further central bank policy rate cuts (More EM central banks to join
rate cutting party, 30 September 2015). Where real policy rates are still quite high (e.g. India, Philippines)
and in particular where central bank FX reserves are sufficient to provide currency stability near-term (e.g.
China), central banks have both the incentive and room to further loosen monetary policy in a bid to support
economic growth (see Figure 11).
Figure 11: Scope for central bank rate cuts where growth weak and real rates high
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0
20
40
60
80
100
2011Q1 2012Q2 2013Q3 2014Q4
US China
% contribution to global GDP growth
0
10
20
30
40
50
60
Q1 2011 - Q1 2014
US China
Average % contribution to global GDP growth
Q2 2014 - Q2 2015
-5
-3
-1
1
3
5
7
9
11
13
Central bank real policy rate (%)*
Real GDP growth in H1 2015, % year-on-year

8. Source: National centralbanks and statistics offices
Note: Central bank policy rate minus CPI-inflation (WPI-inflation for India). Data are for end-September 2015,except China,
India, Malaysia,Nigeria, Singapore and South Africa where data refer to end-August 2015.