Is Anti-Globalisation a Threat to Economic Growth?

Emma Wall talks to Schroders chief economist Keith Wade about the outlook for global economic growth and what threatens expansion

Emma Wall 11 October, 2017 | 10:24AM
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Emma Wall: Hello, and welcome to the Morningstar series, "Market Reaction." I'm Emma Wall and I'm joined today by Keith Wade, Chief Economist for Schroders, to talk about global growth.

Hello, Keith.

Keith Wade: Hi.

Wall: So, we've had a report out this week from the IMF about global growth. Let's start with the good news, because there was some in the report, wasn't there?

Wade: Well, certainly, because the IMF have upgraded their outlook for the world economy, which is always excellent news. Now, some of that isn't a surprise, because in a way the IMF are catching up with their previous forecast, which was back in the spring. But the data has been very good. And actually, recently, we've seen, if anything, a bit of an acceleration in the world economy with a lot of the business surveys coming in a bit stronger than expected, suggesting that the world economy is really finishing 2017 on a very strong note.

Wall: It certainly puts to bed concerns about us having already peaked with the global economy, global economic growth and going into a recession period, doesn't it?

Wade: Well, it certainly has. And I think also the talk of secular stagnation as well. That's really sort of gone away at the moment. And what's particularly encouraging about the recovery at the moment, it does seem that business investment is beginning to pick up. So, the recovery now is sort of broadening out into a business investment phase which is extremely encouraging for future growth as well.

Wall: That is the global outlook, however. Looking closer to home, at the domestic economy, the UK GDP growth, that was downgraded, wasn't it?

Wade: Yes. I think that's disappointing, because of course, in a strong world economy you'd expect the UK to be benefiting. And it's doubly disappointing in the sense that the pound has fallen very sharply. So, the UK would have been expected to have been able to take advantage of this. My view is that the Brexit, in fact, is probably weighing on activity, particularly on trade, because a lot of our partners overseas are not sure about what our future trading relationships are going to be. And so, the weak pound has not translated into stronger growth.

Wall: It has translated into a higher stock market, however, though, so once again proving that economics and corporates are not necessarily intertwined?

Wade: No. That's right. I mean, of course, a large proportion, about 60%, 70% of UK earnings are from overseas. And the UK equity market is very international. I mean, it's a bit more exposed to all parts of the world including the emerging markets and it's quite commodity and energy-related. So, it tends to move on a different path to the economy itself.

Wall: Now, there was one line in the IMF report that I thought was rather interesting and it was about the disillusionment with globalisation and the impact this could have on future economic growth. We've seen the election of Trump; we've seen Brexit here in the U.K. And that certainly plays to that anti-globalisation message. But we've also seen across Europe it failed to build up speed. Le Pen did not get it in France; the Dutch elections did not go the way of anti-globalisation. How concerned should we be about anti-globalisation and its impact on the global economy?

Wade: Well, it's interesting, because so far this year actually, the news has been quite good, particularly the election of President Macron in France. But of course, recently with Catalonia, we've seen an example of nationalist sentiment, regional sentiment emerging. I think the fundamental problem here is that although the world economy is doing better, we are not really seeing that translate into stronger wage growth. So, households generally are not sharing in the improvement in economic activity. And given the increase in inequality that we've seen as well, this has caused a lot of discontent and of course, this is what's been behind the rise of a lot of populism that we've seen, particularly in the US and UK But I don't think it's the end of the story. And until we start to see stronger productivity growth and stronger wages coming through, I think this kind of populist sentiment is going to continue and people there will be looking at anti-globalisation measures, such as protectionism or breaking away from a group or what have you.

So, I think, fundamentally, the economics of anti-globalisation are probably still there and this is one reason why the IMF has said, we need to use this opportunity of stronger growth to try and improve productivity, try and improve education and so on, in order to get around that.

Wall: Keith, thank you very much.

Wade: Thank you.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

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Emma Wall  is former Senior International Editor for Morningstar