Why global growth is going nowhere

Global growth is now expected to remain more or less unchanged at 3.5 per cent over the next couple of years. The new figure compares to previous forecasts of 4 per cent by 2017.

Additionally, the risks are skewed to further downward revision in the near term, due to factors including  slowing potential growth, still-sizable debt overhang and output gaps in many advanced economies.

The potential for a global manufacturing and/or trade recession, financial liberalisation in emerging markets and ongoing nagging global current account imbalances are also concerns.

Among developed economies the outlook is for steady-to-slightly improving growth. The US is likely to be a standout, expected to grow by around 2.5 per cent in 2015, but it is difficult to see how it can maintain a rate of around 2 per cent over the medium term.

Asian giant China is expected to slow to 6 per cent over the next two years. This would be a respectable outcome for an economy that accounts for nearly one-fifth of global GDP. Japan and Europe are expected to grow between 1 per cent and 2 per cent.

A shift to lower growth is desirable both for China and the world economy. If Chinese authorities tried to resist such slowing it could lead to excessive leverage and asset bubbles. This would in turn be a threat to global economic and financial stability.